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MGM Resorts (MGM) Banks on Sport Betting, Traffic Woes Stay

MGM Resorts International MGM is likely to benefit from sports-betting expansion, pent-up consumer demand and high domestic casino spend. Also, focusing on the loyalty program bodes well. In the past year, shares of MGM Resorts have declined 2.8% in the past year compared with the industry’s 52.2% plunge. A decline in traffic from pre-pandemic levels is a concern.

Let’s delve deeper.

Factors Driving Growth

Sports betting and iGaming continue to drive growth following the legalization of sports betting outside Nevada. To this end, BetMGM continues to gain market share. Ever since its launch in 2018, the company has done extremely well and is now operating in 21 markets. Total contributions from BetMGM in 2021 came in at $850 million, thereby growing nearly five times from 2020 levels. Given the positive momentum in markets coupled with its unique and unparalleled online and offline offerings, the company is optimistic about long-term growth with revenue expectations of more than $1.3 billion in 2022. MGM expects to achieve positive EBITDA in 2023. To drive growth, it continues to invest in additional markets. MGM Resorts and Entain anticipate investing approximately $450 million in 2022. BetMGM has a long-term growth target of 20-25% in U.S. sports betting and iGaming. Currently, the company is on track to achieve its target.


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The company continues to benefit from pent-up consumer demand and high domestic casino spend. The company announced that 14 of its 17 domestic properties witnessed either all-time or fourth-quarter margin records. In Las Vegas, the company’s revenues are back to normal owing to leisure and domestic casino customers. Net revenues at Las Vegas Strip Resorts in the third quarter were $1.8 billion, up 277% year over year on account of easing of operational and capacity restrictions and increase in travel due to the easing of cross-border restrictions over time. Las Vegas Strip Resorts net revenues were up 26% from 2019 levels. Strip hotel occupancy increased to 86% in the fourth quarter from 82% in third-quarter 2021. Going forward, the company anticipates the momentum to continue owing to strength in weekend ADR’s.

MGM Resorts is focusing on asset-light strategy. The company continues to emphasize on monetizing its real estate assets and bolster its domestic cash position. To this end, the company simplified its structure by selling MGP (to VICI) and The Mirage (to Hard Rock for $1.075 billion). The company has initiated strategic changes with respect to taking over City Center operations. Also, MGM entered into a definitive agreement with Blackstone to acquire the hotel operations of The Cosmopolitan of Las Vegas for $1.625 billion. The transaction is subject to regulatory approvals and is likely to close in the first half of 2022. We believe that the deals will simplify its corporate structure with additional liquidity, helping the company transition into a premier gaming entertainment company.

The company continues to focus on the loyalty program to drive growth. On Feb 1, 2022, the company rebranded its customer loyalty program from M life to MGM Rewards. The updated program emphasizes on key opportunities, like targeting high-value nongaming customers in addition to high-volume gaming customers as well as incentivizing cross-property patronage and tier progression with more benefits. The launch of MGM Rewards also comes with a new streamlined app that makes it simple for members to review their tier status and benefits. Moreover, the company intends to further activate BetMGM's customers in its properties. In 2021, approximately 42% of new database sign-ups came from BetMGM. Given the unparallel collection of resorts coupled with premier partnerships, the company anticipates attracting and retaining more high-value gaming, digital gaming, and nongaming customers in the upcoming periods.

Concerns

The Gaming industry is currently grappling with the coronavirus pandemic and MGM Resorts isn’t immune to the trend. The omicron variant, which is the most transmissible and contagious variant to date, has caused an increase in COVID-19 cases globally. Although the company resumed operations in most of its properties, traffic is still below pre-pandemic levels. Given the uncertainties related to the crisis, chances of operational restrictions (imposed by governmental authorities), reimposing stay at home orders and travel restrictions cannot be ruled out. A resurgence in coronavirus cases might hurt the company’s performance.

Zacks Rank & Key Picks

MGM Resorts currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks in the Consumer Discretionary sector include Funko, Inc. FNKO, Bluegreen Vacations Holding Corporation BVH and Marriott International, Inc. MAR.

Funko sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 96.2%, on average. Shares of the company have declined 11.1% in the past year.

The Zacks Consensus Estimate for Funko’s current financial-year sales and EPS (earnings per share) suggests growth of 22.7% and 26.8%, respectively, from the year-ago period’s levels.

Bluegreen Vacations carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 425.1%, on average. Shares of the company have surged 55.2% in the past year.

The Zacks Consensus Estimate for Bluegreen Vacations’ current financial-year sales and EPS indicates growth of 8.3% and 20.8%, respectively, from the year-ago period’s levels.

Marriott carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 86.6%, on average. Shares of the company have gained 6.7% in the past year.

The Zacks Consensus Estimate for Marriott’s current financial-year sales and EPS indicates growth of 40.3% and 73%, respectively, from the year-ago period’s levels.


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Marriott International, Inc. (MAR): Free Stock Analysis Report
 
MGM Resorts International (MGM): Free Stock Analysis Report
 
Funko, Inc. (FNKO): Free Stock Analysis Report
 
Bluegreen Vacations Holding Corporation (BVH): Free Stock Analysis Report
 
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