MGM Resorts posted a stronger-than-expected set of Q1 2023 results last week driven by stronger business at the company’s Las Vegas properties and a recovery in Macau. While revenue surged 36% from the year-ago quarter to $3.87 billion, net income came in at $ 467 million, or $1.24 per share, well ahead of estimates. Growth was led by the company’s Las Vegas Strip properties, which saw revenues rise by close to 31% year-over-year to $2.2 billion, driven by the inclusion of The Cosmopolitan, a positive comparison with last year when the omicron variant of Covid-19 was spreading and also due to higher average room revenues, although this was partly offset by the sale of The Mirage. The hotel operations in particular are faring well in Las Vegas, with occupancy rising to 92% and average daily rates also growing 32%. MGM is also seeing a recovery in Macau as pandemic restrictions in China have eased, with tourist footfalls into Macau and overall spending now on the upswing. For perspective, MGM’s casino revenues in the region rose to 84% of the Q1 2019 levels.
Now, MGM stock has seen a solid rally this year, rising by close to 30% year-to-date. So is the stock still a buy at current levels of about $43 per share? We believe it is. Although the stock trades at about 19x projected 2024 earnings, which is not exactly cheap, there are a couple of factors that could help the stock. The Macau business could see a further recovery. Overall visitors to Macau reached about 5 million over the first quarter, about 48% of pre-pandemic levels. We should see a considerable recovery in the coming quarters as airline capacity in the region improves. 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 betting and gaming platform expected to see 2o23 revenue of between $1.8 billion to $2 billion. Earlier this year the company launched in Ohio and Massachusetts, taking BetMGM’s total footprint to 26 markets. MGM has been looking to expand into the Japanese market with a property in Osaka, which is scheduled to open around 2029 or 2030. We value MGM Resorts stock at about $50 per share, which is about 13% ahead of the current market price. See our analysis of MGM Resorts Valuation: Expensive or Cheap for more details.
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