MGM Lacks Macau Growth of Peers as Earnings Stall in Q3

+9.62%
Upside
43.04
Market
47.18
Trefis
MGM: MGM Resorts logo
MGM
MGM Resorts

MGM Resorts International (NYSE:MGM) reported improved quarterly results last week with diluted EPS shrinking from a loss of $0.72 to $0.25 per share this quarter. Its competitor, Las Vegas Sands (NYSE:LVS), recently posted strong quarterly numbers surpassing analyst expectations. Despite a recovery in Las Vegas gaming market, MGM’s casino revenues related to its wholly owned domestic resorts witnessed a decrease of 2% compared to Q3 2010. This has weighed on sentiment for the stock. MGM competes with Wynn Resorts (NASDAQ:WYNN), Las Vegas Sands, Boyd Gaming (NYSE:BYD) and Harrah’s.

Our price estimate for MGM Resorts International is $11, which is roughly at a premium to the market price.

See our full analysis for MGM

Relevant Articles
  1. Is MGM Stock Poised To Rise To $50 With Macau’s Recovery?
  2. Will Macau Recovery Help Drive MGM Stock Back To $50?
  3. Will A Macau Recovery Drive MGM Stock Higher Following Q1 Results?
  4. A Strong Vegas Business And Recovery In Macau Will Drive MGM’s Q2 Results
  5. What’s Happening With MGM Resorts Stock?
  6. Up 16% Over The Past Month, What’s Next For MGM Stock?

What Could Be Troubling MGM?

  • MGM has majority of its operations in the U.S., particularly in Las Vegas. It does have well-known brands under its name including Bellagio, MGM Grand Las Vegas, The Mirage, Mandalay Bay among others. However, we believe dependence on one major market in present volatile conditions is really risky for a business. MGM lacks geographically diversified revenue stream as enjoyed by its competitors like LVS and Wynn Resorts wh0 have a strong presence in Macau. LVS has presence in Singapore as well.
  • Presently, Macau houses the biggest gaming industry in the world, surpassing Las Vegas a couple of years ago in terms of annual turnover. MGM does have a footprint in Macau but on a smaller scale. It operates though its subsidiary MGM China. MGM has plans to develop a project in partnership with Pansy Ho, daughter of Stanley Ho. The resort and casino is expected to have about 1,600 rooms and suites, as well as the gaming area that would accommodate up to 500 tables and 2,500 slot machines.

We believe MGM’s future stock performance hinges strongly on its Macau expansion plans and their progress thereafter. This could help MGM to be a part of the rapidly growing Macau gaming market and establish its strong presence in the Asian sub-continent. This could also mean, it might have to follow the strategies of the other competing firms like Wynn and LVS, which helped them remain safeguarded from the economic crisis to some extent.

Related Article
Marina Bay Sands: The Key Growth Driver for LVS, Supports $51 Estimate

Understand How a Company’s Products Impact its Stock Price at Trefis