A tough operating environment in Macau weighed on casino stocks in 2015 and for the most part of 2016.
However, with Macau — the mecca of casino gaming –– starting to look up, things seem to be rosy for the casino industry. Notably, gaming revenue in Macau grew on an annual basis in December to register five consecutive months of gains, following the extended slump of over two years.
Meanwhile, the casino players’ properties in Las Vegas are continuing to cash in on improving employment rate and upbeat tourism numbers.
Thus, favorable casino industry trends make it the right time to add a few casino companies to your portfolio now. MGM Resorts International (MGM), one of the leading companies in the gaming industry, is one such stock, which is worth considering.
What Makes MGM Resorts a Solid Choice?
Stock Price Movement: MGM Resorts’ shares have outperformed the broader Zacks categorized Gaming industry over the past three months. While the stock returned nearly 10%, the broader industry added around 1% in the same time frame. Given the improving gaming trends in Macau, the stock should perform well in the quarters ahead.
Domestic Ventures & Efforts to Grow Macau Business: MGM Resorts’ Las Vegas business is expected to continue growing over the long term, driven by a strong convention calendar and the completion of several capital initiatives on the Las Vegas Strip.
The new openings are expected to result in increased occupancy and better pricing in the domestic markets, which should drive incremental revenues at the company’s properties in the region. Also, through its new projects, the company is aiming to diversify its business by focusing on the non-gaming amenities as well.
Meanwhile, initiatives undertaken by the company to increase revenues and junket productivity in Macau as itanticipates a positive trend buoyed by upgrades to main gaming floor products and marketing initiatives, bodes well. Moreover, MGM Cotai’s construction is in the final stages and is expected to boost revenues when it opens in the second quarter of 2017.
Also, the government of China is considering measures to support Macau’s economy in all aspect and introduce favorable policies, which is expected to improve visitation pattern and boost tourism along with traffic in the region.
Profit Growth Plan: MGM Resorts’ Profit Growth Plan that began in Aug 2015, focuses on improving revenues and reducing expenses by optimum use of resources; improving purchasing power as well as utilizing technology to improve analytics and forecasting tools. Notably, it has already begun reaping benefits from the plan as is evident from EBITDA growth in 2016. The third-quarter 2016 marked the sixth consecutive quarter of double-digit EBITDA growth at the company.
Earnings History and Estimate Revisions: MGM Resorts has beaten earnings estimates in six of the seven trailing quarters, with an average beat of 139.40% in the last four quarters.
Earnings estimates for 2016 and 2017 have also gone up slightly over the past 60 days. The positive earnings estimate revisions indicate a boost in analysts’ confidence, thereby substantiating the Zacks Rank #2 (Buy) for the stock and expectations of outperformance in the near term. Further, for 2016, EPS is expected to grow a robust 113.30%.
VGM Score: MGM Resorts has a VGM Score of ‘B’. Our VGM Score identifies stocks that have the most attractive value, growth, and momentum characteristics. In fact, our research shows that stocks with VGM Scores of ‘A’ or ‘B’ when combined with a Zacks Rank #1 or 2 make solid investment choices.
The Bottom Line on MGM: Lots of Competition for Your Money
MGM Resorts faces stiff competition in the markets of Las Vegas and Macau due to increased hotel openings and promotional activities.
In fact, the company’s upcoming project in the Cotai Strip is expected to face extreme peer pressure from several other Chinese casino operators and the Sands Cotai Central project of Las Vegas Sands Corp. (LVS), Wynn Resorts Limited (WYNN) also opened a full-scale integrated resort, Wynn Palace, on the Cotai Strip in Aug 2016.
Nonetheless, given the company’s strong fundamentals, superior business model, extensive non-gaming revenue opportunities, high quality assets and attractive property locations, the stock should keep performing well in the quarters ahead compared to its peers, making it a top investment choice.
Another favorably-ranked stock in this sector is Melco Crown Entertainment Limited MPEL sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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