BTIG Initiates MGM Resorts Coverage with Buy Rating and $52 Price Target

MGM Resorts International (NYSE:MGM) reported stronger-than-expected first-quarter earnings, fueled by improved profitability and a solid performance from its BetMGM venture.

The company posted adjusted earnings per share of $0.69, beating analyst expectations of $0.49. Revenue came in slightly below forecasts at $4.28 billion, just under the $4.29 billion consensus and down 2% year-over-year from $4.38 billion.

Despite the revenue decline, MGM highlighted positive trends across its operations. Las Vegas Strip properties generated $2.2 billion in revenue, down 3% from the prior year, largely due to a difficult comparison with the 2024 Super Bowl quarter. Regional operations revenue slipped 1% to $900 million, while MGM China reported a 3% decline to $1.0 billion.

The company achieved a record first-quarter occupancy rate of 94% on the Las Vegas Strip, with slot win rising 7% year-over-year. Meanwhile, BetMGM delivered strong revenue growth and turned EBITDA positive for the first time in a quarter—an encouraging milestone for the joint venture.

• MGM Resorts International (NYSE:MGM) has seen a decline in consensus price targets over the past year, with the current average at $39.
• The company boasts strong revenue and EBITDA, with a favorable price-to-earnings ratio of 10.63.
• BetMGM, MGM's online sports betting and iGaming venture, is expected to achieve a positive EBITDA in 2025, with projected net revenue of $2.4 billion to $2.5 billion.

MGM Resorts International (NYSE:MGM) is a key player in the casino, hotel, and entertainment resort industry, with a strong presence in the United States and Macau. The company offers a wide range of services, including gaming, hotel accommodations, conventions, dining, entertainment, and retail amenities. Additionally, MGM has a significant stake in the online sports betting and iGaming market through BetMGM, a joint venture with Entain.

The consensus price target for MGM's stock has seen a decline over the past year. Last month, the average price target was $39, reflecting a cautious outlook from analysts. This is a decrease from three months ago when the target was $44.5, and a significant drop from last year's $51.67. This downward trend may be influenced by various factors, including market conditions and company performance.

Despite the decline in price targets, MGM's stock has been trading within a stable range of $33.23 to $46.60. The company's strong revenue and EBITDA, along with a favorable price-to-earnings ratio of 10.63, support this stability. MGM is also pursuing global expansion, with an ambitious $8 billion project in Japan, financed through cheaper debt, indicating solid financial standing.

In the U.S. sports betting market, BetMGM holds an 11% market share, trailing behind competitors FanDuel and DraftKings, which have 35% and 32% shares, respectively. However, Citigroup has set a price target of $56 for MGM's stock, suggesting potential for growth. Citigroup also anticipates that MGM will surpass earnings estimates in its upcoming report, driven by a combination of favorable factors.

BetMGM has shown accelerating growth and improved performance metrics throughout 2024, thanks to its leading iGaming offerings and enhanced sports products. The company expects to achieve a positive EBITDA in 2025, with projected net revenue ranging from $2.4 billion to $2.5 billion. BetMGM remains confident in its pathway to achieving $500 million in EBITDA, supported by scale, revenue growth, and operational leverage.

• MGM Resorts International (NYSE:MGM) reported earnings of $0.59 per share (GAAP), beating the Zacks Consensus Estimate of $0.56 (GAAP) per share.
• The company posted revenue figures of $4.33 billion for the quarter, exceeding expectations and marking an increase from the previous year.
• Despite positive financial outcomes, MGM's stock has declined about 6% since the beginning of the year, contrasting with the broader market's performance.

MGM Resorts International (NYSE:MGM) recently reported its quarterly earnings, showcasing a notable performance that exceeded analysts' expectations. The company, a major player in the gaming and hospitality industry, reported earnings of $0.59 per share, which was higher than the Zacks Consensus Estimate of $0.56 per share. This performance not only highlights a substantial improvement from the $0.56 per share earned a year ago but also marks a surprise of 5% over expectations. MGM has demonstrated a consistent ability to surpass consensus EPS estimates over the last four quarters, underlining its operational efficiency and market adaptability.

In terms of revenue, MGM posted figures of $4.33 billion for the quarter ending June 2024, outperforming the Zacks Consensus Estimate by 3.56%. This revenue beat marks an increase from the $3.94 billion reported in the same period last year, continuing MGM's streak of surpassing consensus revenue estimates for four consecutive quarters. Such financial achievements reflect the company's strong market presence and its ability to generate growth amidst competitive pressures and changing market dynamics.

Despite these positive financial outcomes, MGM's stock has faced challenges, with a decline of about 6% since the beginning of the year. This contrasts with the broader market performance, as indicated by the S&P 500's gain of 14%. The future trajectory of MGM's stock is anticipated to hinge on management's commentary during the earnings call and the company's forward-looking earnings outlook. The mixed earnings outlook, with a current consensus EPS estimate for the coming quarter at $0.65 on revenues of $4.18 billion, and $2.90 on revenues of $17.1 billion for the current fiscal year, suggests a cautious optimism among investors and analysts.

The gaming industry, where MGM operates, is ranked in the top 36% of the over 250 Zacks industries. This ranking suggests a potentially favorable environment for MGM, although the company's performance will also be influenced by broader industry trends. In comparison, Super Group Limited (SGHC) is also set to report its quarterly earnings soon, with expectations of a year-over-year increase in EPS and revenues. This competitive landscape underscores the importance of MGM's strategic initiatives and operational efficiencies in maintaining its market position.

However, MGM's financial health has shown mixed signals in other areas. Despite a slight decrease in revenue growth, the company saw a notable increase in gross profit growth by approximately 9.75%. This indicates MGM's ability to manage its cost of goods sold effectively, enhancing its profitability. Yet, challenges are evident in the decrease in net income growth by about 13.98% and a decline in operating income growth by around 14.98%, reflecting pressures on MGM's bottom line. Additionally, the significant drops in both free cash flow and operating cash flow growth, each by 100%, raise concerns about the company's liquidity and operational efficiency. These financial metrics, coupled with a slight decrease in book value per share growth and a minor increase in debt growth, paint a complex picture of MGM's financial health and operational challenges.

Susquehanna analysts upgraded MGM Resorts (NYSE:MGM) to Positive from Neutral, increasing their price target on the stock to $54 from $46. Although MGM's Q1/24 results reported yesterday were only a slight improvement over expectations, the management call highlighted a stronger focus on future growth.

Management expressed plans to invest more capital in their most profitable asset, Las Vegas, which represents about 80% of the company's value. They also mentioned strategies to optimize revenue in the softer Q2/24 environment before accelerating growth through investments and other tools. The sports calendar's seasonality and favorable comparisons in the second half of 2024, partly due to the impact of last year's cyberattack, also offer growth potential.

The analysts expect these factors to lead to significant upward revisions in estimates for 2024 and 2025. They believe that understanding the prospects for MGM hinges on recognizing the Las Vegas market's importance, and sees sufficient valuation support considering the key value drivers in Las Vegas.