Will A Macau Recovery Drive MGM Stock Higher Following Q1 Results?

MGM Resorts (NYSE:MGM) is expected to publish its Q1 2024 results on May 1, reporting on a quarter that is likely to see the company benefit from a strong recovery in Macau and potential continued strength in its Las Vegas properties. We expect sales to come in at $4.25 billion, in line with consensus estimates and marking an increase of about 18% versus last year. We expect earnings to come in at about $0.55 per share, slightly ahead of the consensus.

MGM’s Las Vegas Strip properties should fare well driven by a strong U.S. gambling market and the Super Bowl, which was held in Las Vegas this February. Customers have also been spending more on average at casinos, with average hotel room rates also trending higher. MGM’s Macau business is also likely to witness a strong rebound after China relaxed its intense Covid-19 restrictions last year.  Tourist arrivals at Macau have rebounded strongly and MGM is seeing strong pent-up demand. Tourist arrivals into Macau increased by 79.4% to 8.88 million for Q1 2024, approaching roughly 86% of pre-pandemic levels. Moreover, spending has also picked up. Market-wide mass gaming revenue for Macau reached about $5.9 billion for Q4 2023 (or roughly 105% of 2019 levels). Over Q4 2023, the company’s Macau revenue came in at $983 million, marking an increase of over 5x compared to last year.

MGM stock has seen extremely strong gains of 50% from levels of $30 in early January 2021 to around $45 now, vs. an increase of about 35% for the S&P 500 over this roughly 3-year period. However, the increase in MGM stock has been far from consistent. Returns for the stock were 42% in 2021, -25% in 2022, and 33% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that MGM underperformed the S&P in 2022. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Consumer Discretionary sector including AMZN, TSLA, and TM, and even for the megacap stars GOOG, MSFT, and AAPL. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics.
Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could MGM face a similar situation as it did in 2022 and underperform the S&P over the next 12 months – or will it see a strong jump?

We currently remain marginally positive on MGM Resorts stock at about $47 per share, which is about 10% ahead of the current market price.  See our analysis of MGM Resorts Valuation: Expensive or Cheap for more details. The stock trades at about 18x projected 2024 earnings, which is reasonable considering the company’s growth. Although MGM’s exposure to Macau is smaller compared to its rivals, the recovery should help the company’s earnings. Moreover, the company is also making progress with its interactive gaming initiatives, with its BetMGM online sports turning profitable over the second half of last year.

[1] Returns as of 4/25/2024
[2] Cumulative total returns since the end of 2016

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