MGM buoyed by Las Vegas Strip, Macau, Japan

April 12, 2023 4:10 PM
Photo: Shutterstock
  • David McKee, CDC Gaming Reports
April 12, 2023 4:10 PM
  • David McKee, CDC Gaming Reports
  • Japan
  • Macau
  • Nevada

Nudging his price target for MGM Resorts International a dollar upwards to $55 per share, J.P. Morgan analyst Joseph Greff cited the company’s Las Vegas Strip exposure, “a market that should benefit from continued midweek group and convention business, as well as a strong event calendar.” Specifically, Greff pointed to the 2024 Super Bowl as a catalyst. (MGM shares traded at $43.18 per share at the time of the report this morning.)

Story continues below

Greff was also impressed with the gambling recovery in Macau, “where MGM’s share of Macau isn’t a rounding error, but more meaningful to the equity.” The company has enjoyed greater-than-previous market share in the Chinese enclave since its reopening after the pandemic.

As he had with Wynn Resorts on Monday, Greff ratcheted up his projections for Macau, forecasting $407 million in revenue and $63 million in cash flow for the first quarter of this year, far higher than his previous estimates of $321 million in revenue and $40 million of cash flow.

As at Wynn’s two Macanese casinos, VIP play is just 20 percent of pre-COVID totals, but MGM’s table and slot play have regained 65 percent of prior levels. “We estimate that each month in the quarter improved meaningfully sequentially and non-gaming revenues also saw similar strength.”

This improving trajectory extends into the second quarter, for which Greff prognosticates $452 million in revenue and $72 million of cash flow, as the mass market returns to 70 percent of pre-pandemic totals. This continues a trend in which the Macau casino industry relies more heavily than before on mass-market play.

Greff predicted that mass-market customers will be at 85 percent of pre-COVID levels for MGM by year’s end and 95 percent next year. For VIP play, frowned on by the Chinese government, he sees no such improvement. Peering into his looking glass, Greff foresees $2.5 billion MGM China-derived revenue in 2024, as well as cash flow of $674 million.

The analyst also saw in BetMGM a path to positive return on investment, rounding out MGM’s strengths with “a strong liquidity and capital-structure position, which should allow MGM to shrink its share count and invest in its domestic land-based casinos.” He opined that the current valuation of MGM was “baking in too much negativity” from concerns over the macroeconomic environment and the sustainability of Strip trends.

J.P. Morgan’s senior analyst raised his U.S. regional-casino estimates and those for MGM in Macau, but stood pat on Las Vegas. He regarded these “as reasonably based and allowing for potential positive revisions.” MGM’s trading at eight times estimated 2023 cash flow is“fairly low” but “appealing.”

MGM received an additional boost today, as both the Kyodo News and Inside Asian Gaming reported that the government of Japan will shortly certify an Osaka casino megaresort, to be jointly developed by MGM and Orix Corp. The $9 billion project is expected to open in 2029. If approved as reported, the MGM/Orix project is projected to draw 20 million visitors per year, with an annual economic impact of $8.5 billion.

News was less good for rival Casinos Austria, whose $3.2 billion Nagasaki casino proposal was described as “shrouded in controversy” and not likely to be green-lit soon.