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MGM Sees Little Impact From Caesars-Eldorado Deal

We continue to believe the shares are undervalued.

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Although we think Eldorado Resorts’ domestic casinos could enjoy a mid-single-digit revenue gain from being added to Caesars’ 55 million-member loyalty program once the deal is completed in the first half of 2020, we see only a handful of Eldorado’s 26 facilities overlapping with  MGM Resorts(MGM) Mississippi and Atlantic City properties. We estimate these regional properties amount to 10% and 11% of total 2019 EBITDA and sales for MGM, respectively, and could see an annual revenue impact of around 1% in 2021-28. As a result, we don’t plan to change our $38 fair value estimate for no-moat MGM, and we continue to find the shares attractive.

Our analysis shows that Eldorado’s Baton Rouge, Greenville, and Lula casinos are within a 2-hour drive of one of MGM’s two Mississippi facilities. In total, we calculate that these three Eldorado facilities can produce around $200 million in revenue this year and see around a mid-single-digit percentage lift to sales with the integration of Caesars’ loyalty program, based on past results from Caesars’ integrations. We believe that around half of that increase might come at the expense of these MGM properties, equating to roughly a 1% annual sales impact to these casinos.

Dan Wasiolek does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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