After several days of gloomy forecasts, MGM Resorts International gave the casino sector a kick-start Wednesday morning.
A day after a slightly better-than expected quarterly earnings announcement, shares in MGM rose more almost 6 percent on the New York Stock Exchange as investors and analysts offered the casino giant a vote of confidence.
“We view the solid results in the quarter as a positive for the stock and reflective of the myriad growth opportunities the company has pursued,” Jefferies gaming analyst David Katz told investors after MGM exceeded expectations in the third quarter, growing revenues 7 percent to more than $3 billion.
The revenue increase was far above analyst consensus expectations, and came about despite a 6.5 percent decline from its nine Las Vegas Strip resorts for the quarter that ended Sept. 30. However, MGM expected to complete its transformation of the Park MGM – with the addition of the luxury boutique NoMad Hotel to the building’s top four floors – by December.
The company sees positive trends in its convention business going into next year.
“We feel pretty comfortable with our view that 2019 will be a recovery year in Las Vegas and MGM specifically,” Union Gaming Group analyst John DeCree told investors. “In addition to the strong group business trends, Park MGM and NoMad will be fully online for 2019 with construction disruption concluding. While we expect the new property will take some time to reach its full potential, it should provide a nice tailwind in 2019.”
MGM Resorts opened MGM Cotai in Macau in February and MHM Springfield in Massachusetts in late August. The company acquired the operations of the Cleveland-area Hard Rock Rocksino in September and has one further transaction pending, the $890 million purchase of Empire Casino and Raceway in Yonkers, New York. The deal is expected to close by February.
“We got the sense management is not interested in pursuing incremental (mergers) activity at this point, a conclusion that, if true, provides greater certainty around (MGM’s) near-to-intermediate term return of capital initiatives,” said Stifel gaming analyst Steve Wieczynski.
Shares of MGM closed at $26.68 on the New York Stock Exchange Wednesday, up $1.49 or 5.92 percent. The MGM earnings seemed to help the stock prices of other companies in the sector, with Las Vegas Sands, Wynn Resorts, Boyd Gaming, Penn National Gaming, Caesars Entertainment, Red Rock Resorts, Eldorado Resorts and Golden Entertainment all reversing recent slides.
Roth Capital Partners gaming analyst David Bain termed MGM’s third quarter results as a “comfort quarter” that might help stem what he believes is an “overdone” gaming stock decline.
Since June 1, the share prices of U.S. casino companies with operations in Macau (MGM, Wynn and Las Vegas Sands) are down 38 percent. Regional casino stocks are down 29 percent and gaming equipment supplier stocks have slipped 35 percent. At the same time the S&P 500 is off 2 percent and the Nasdaq is down 5 percent.
Other observers agreed with the assessment.
Macquarie Securities gaming analyst Chad Beynon thought MGM’s results “could be enough to spark a turnaround in sentiment” toward the sector. Wieczynski said the company’s operating results from it’s Strip casinos, “came in far better than expected.”
Wieczynski noted the MGM’s management provided “an encouraging early read” on 2019’s group and convention business by pacing 80 percent ahead of last year’s targeted bookings.
“We view sustained strength in the group business as critically important to management achieving its 2020 financial objectives on time, as these guests often book at higher rates, spend more once on property and provide a nice base of business,” Wieczynski said.
However, Deutsche Bank gaming analyst Carlo Santarelli had a differing view. He told investors MGM’s optimism around the group bookings might be “a bit overstated. Santarelli noted the Las Vegas Convention and Visitors Authority is projecting up to 1.25 percent growth in convention business next year and MGM believes it can exceed that figure.
“While 1 percent tot 2 percent group room night growth would certainly be beneficial, the pace is well below what most lodging (companies) are currently seeing for 2019, and by no means enough to offset a continuation of sluggish leisure trends, in our view,” Santarelli said.
Analysts are also closely watching Thursday morning’s announcement of Caesars Entertainment’s third quarter results for continued signs of recovery.
Howard Stutz is the executive editor of CDC Gaming. He can be reached at hstutz@cdcgamingreports.com. Follow @howardstutz on Twitter.
