Company Reports

Pennsylvania and Michigan released sports wagering and revenue data through February, including individual operator performance. The data supports our view that no-moat Penn is grabbing share at the hands of no-moat peers MGM and Caesars, while no-moat DraftKings adds to its leading position due to first mover and technology advantages. In fact, since launching ESPNBet in November, Penn has averaged a 4- and 7-percentage-point sports revenue share improvement over the prior year in Pennsylvania and Michigan, respectively, reaching a high-single-digit share of both markets and aligning with our forecast. Meanwhile, MGM’s share over the same time is lower by 3 and 5 percentage points; Caesars’ is flat and down 3 percentage points; and smaller competitors are collectively lower by 3 and 3 percentage points. Conversely, DraftKings’ share is up 7 and 11 percentage points.

Thailand moved closer to legalized gambling this month with the completion of a gaming draft bill, setting the stage for a law as soon as this year, based on reports of strong government support. We don’t believe the prospect of Thailand gaming resorts will have any material impact on demand for casinos in Macao, Singapore, or Japan for the foreseeable future. We are maintaining our fair value estimates of $61 for narrow-moat Las Vegas Sands, $122 for narrow-moat Wynn Resorts, and $55 for no-moat MGM Resorts. We rate all three as undervalued.

No-moat MGM Resorts' Macao's (17% of 2023 EBITDAR) sales rebounded sharply in 2023 (reaching back above 2019's level in the second quarter), after the Chinese government removed covid restrictions on Jan. 8, 2023. And although Macao faces elevated operational risk from government oversight, the company remains positioned for the attractive long-term growth opportunities in the region. Further, MGM's leading omnichannel presence in the US. should aid it in the sports betting and iGaming growth markets. Also, we expect the company to have a Japanese integrated resort in 2030, accounting for an estimated 5% of total EBITDAR that year.

We don’t plan to materially change our no-moat MGM Resorts $55 fair value estimate, leaving shares slightly undervalued after digesting fourth-quarter and fiscal 2023 results. Total revenue grew 23% in 2023 to $16.2 billion versus our $15.9 billion estimate, with adjusted EBITDA matching our $4.6 billion forecast.

BetMGM, which is equally owned by no-moat MGM and Entain, announced its sport betting and iGaming revenue grew 36% in 2023 to $1.96 billion, near our $2 billion forecast. We calculate BetMGM’s revenue share of the $16.6 billion U.S. sports betting and iGaming industry last year (by our estimate) was stable at around 12%, good for third in the market behind FanDuel’s roughly 30% and no-moat DraftKings’ low 20%. But in our view, 2024 presents a more intense competitive landscape, driven by the launch of ESPNBet last November, which is has partnered with no-moat Penn. Early state data from Pennsylvania and Michigan show that ESPNBet has had early success in gaining a few percentage points of revenue share from BetMGM. As a result, we continue to forecast BetMGM’s revenue share drops toward 11% this year before stabilizing around those levels thereafter. Still, we remain optimistic that BetMGM’s omnichannel presence can differentiate it from others, allowing it to be a key beneficiary of the U.S. sports betting and iGaming market, which we see ramping to more than $40 billion in sales by the end of this decade. And we are encouraged with BetMGM’s EBITDA having inflected into positive territory during each of the final three quarters of 2023 and believe that margins can eclipse 20% in the back half of this decade even amid competition.

Entain’s Dec. 4 update on digital gaming company BetMGM, of which no-moat MGM Resorts International owns 50%, included in-line 2023 results but optimistic goals for the long term, in our view. We don’t plan to adjust our $55 fair value estimate for MGM; we view the shares as undervalued, offering investors an opportunity to own a company with a leading physical and digital presence in U.S. gaming.

No-moat MGM Resorts' Macao (22% of prepandemic 2019 EBITDAR) sales have rebounded sharply in 2023 (reaching back above 2019's level in the second quarter), after the Chinese government removed COVID-19 restrictions on Jan. 8, 2023. And although Macao faces elevated operational risk from government oversight, the company remains positioned for the attractive long-term growth opportunities in the region. Further, MGM's leading omnichannel presence in the U.S. should aid it in the sports betting and iGaming growth markets. Also, we expect the company to have a Japanese integrated resort in 2030, accounting for an estimated 5% of total EBITDAR that year.

We don’t plan a meaningful change to our $53 fair value estimate for no-moat MGM and view shares as undervalued. We think concerns over cybersecurity issues have been overblown and unlikely to have a lasting impact on financials.

No-moat MGM Resorts' Macao (22% of prepandemic 2019 EBITDAR) sales are set to rebound sharply in 2023 (reaching back above 2019's level in the second quarter), after the Chinese government removed COVID-19 restrictions on Jan. 8, 2023. And although Macao faces elevated operational risk from government oversight, the company remains positioned for the attractive long-term growth opportunities in the region. Further, MGM's leading omnichannel presence in the U.S. should aid it in the sports betting and iGaming growth markets. Also, we expect the company to have a Japanese integrated resort in 2030, accounting for an estimated 5% of total EBITDAR that year.

We expect to increase no-moat MGM’s $51 fair value estimate by around $1 per share on stronger Macau results, mitigated by mixed results in the company’s domestic portfolio (the reason we think shares fell 6% afterhours).

There was a lot to like in BetMGM’s (50% owned by no-moat MGM) first-half 2023 update, which showcased growing revenue and profitability. We think BetMGM/MGM’s omnichannel presence positions it to be one of the long-term winners in the North American sports betting and iGaming markets, which we see reaching $40 billion in sales by the end of the decade versus just over $13 billion in 2022. We maintain MGM’s $51 fair value estimate, leaving shares near fair value.

No-moat MGM Resorts' Macao (22% of prepandemic 2019 EBITDAR) sales are set to rebound sharply in 2023, after the Chinese government removed COVID-19 restrictions on Jan. 8, 2023. And although Macao faces elevated operational risk from government oversight, the company remains positioned for the attractive long-term growth opportunities in the region. Further, MGM's leading omnichannel presence in the U.S. should aid it in the sports betting and iGaming growth markets. Also, we expect the company to have a Japanese integrated resort in 2030, accounting for an estimated 5% of total EBITDAR that year.

We think MGM Resorts investors have a lot to cheer about, led by a demand recovery in Macau and a Japan resort on the horizon (with a planned 2030 opening). MGM Resorts' Macau gaming revenue and EBITDAR recovered to 78% and 88% of 2019’s level, respectively. Gaming revenue outpaced the nearly 50% rebound in industry gross gaming revenue in the period, as the company is benefitting from a recent increase in table allocation, remodeling and renovation of its gaming floors and suite product, efforts to utilize data analytics, and the temporary effect of some peer room supply remaining offline. We think MGM will be able to hold some of its recent share gains and plan to lift our 2023 Macau sales growth forecast to 140% from 115%. We also plan to lift our 2023 Macau EBITDAR margin estimate to the mid-20s from 19%, as cost efficiencies and mix shift to higher margin mass play and VIP direct bets prove stronger than our previous prognosis.

On April 14, 2023, Japan’s government approved the MGM/Orix plan to develop an integrated resort in the city of Osaka. The news comes nearly a year after the Osaka government submitted the bid to the national government. In our view, the resort will be the country’s only urban gaming license, providing a rich opportunity for MGM. In fact, we estimate that the property (40% owned by MGM, 40% by Orix, and 20% by a consortium of 20 companies) will generate around $4 billion in total sales in 2029 (its first year of operation) with EBITDA margins in the 20s around the end of the decade, generating a return on invested capital in the teens. In total, we see the property generating a high-single-digit percentage of company EBITDA by the end of our 10-year forecast. Having a Japan integrated resort already in our prognosis, we don’t envision any material change to our $50 fair value estimate but will reevaluate after MGM’s first-quarter earnings results on May 1. We see shares as slightly undervalued.

No-moat MGM Resorts' Macao (22% of prepandemic 2019 EBITDAR) sales are set to rebound sharply in 2023, after the Chinese government removed COVID-19 restrictions on Jan. 8, 2023. And although Macao faces elevated operational risk from government oversight, the company remains positioned for the attractive long-term growth opportunities in the region. Further, MGM's leading omnichannel presence in the U.S. should aid it in the sports betting and iGaming growth markets. Also, we expect the company to have a Japanese integrated resort in 2029, accounting for an estimated 8% of total EBITDA that year.

We plan to lift no-moat MGM’s $48 fair value estimate by around a low-single-digit percentage to account for stronger Las Vegas and digital results, mitigated by a push out of its Japan resort opening to 2029 from 2027 (due to a slower-than-expected regulatory process). Meanwhile, we believe MGM’s Macao business is recovering toward our 50% of 2019’s level in 2023. We see shares as slightly undervalued.

January 2023 Macao industry gross gaming revenue, or GGR, surged to over 40% of 2019’s level (up 83% year over year) versus the midteens level seen during 2021, helped by the removal of travel restrictions on Jan. 8 ahead of the Chinese New Year holiday. The results represent the strongest month of gaming demand since January 2020 (before travel restrictions were fully implemented). This buoys our long-held view that there is a global human-ingrained desire to travel and supports our decision last month to lower the Uncertainty Rating to High from Very High for Macau exposed companies Wynn and Las Vegas Sands. That said, there are factors that could make the recovery volatile over the coming months. First, this year’s January included the New Year holiday, which was in February during 2019, making for a tougher comparison with prepandemic marks for this current month. Also, various reports indicate that the reopening of Macao to Hong Kong in January resulted in the majority of visitation during the New Year holiday coming from that region were versus the high-teens percentage the region averaged in 2019, and it remains to be seen how much of this pent-up demand can endure. Finally, there could be additional COVID-19 variants during the coming months that might impact demand. We plan to monitor gaming trends closely and maintain our forecast for 2023 industry GGR to reach around 50% of 2019’s level, or more than a 200% year-over-year increase, followed by a near full recovery in 2024.

No-moat MGM’s online sports betting and iGaming business, BetMGM, provided a positive sales and EBITDA update, lifting our confidence that it stands to be a long-term market share leader in the roughly $30 billion revenue market we see by 2030. We plan to adjust our BetMGM forecast higher after MGM reports full results in early February, which, all else equal, would lift our $48 fair value estimate by around a low-single-digit percentage. We view shares as attractive, especially given signs of ongoing travel and leisure demand in MGM’s core U.S. business (80% of prepandemic EBITDA), along with Macao (20%) demand now improving after the removal of COVID-19 restrictions Jan. 8.

We no longer see Las Vegas Sands' shares offering a compelling risk/reward, after appreciating more than 30% since late October. Sands' shares have reacted positively to recent news of a provisional 10-year gaming license renewal in Macao (66% of precoronavirus EBITDA), supporting the company’s regulatory intangible asset advantage, the source of its narrow moat, as well as some easing of travel restrictions in greater China (reopening of e-visa applications, and reduced quarantine and testing requirements).

This weekend’s news of provisional 10-year gaming license renewals for the six existing Macao operators removes an overhang on gaming operators’ shares. However, the news was expected, and the larger near-term unknown remains the demand impact from China's COVID-19 zero-tolerance policy. We maintain our $49, $107, and $48 fair value estimates on Las Vegas Sands (narrow moat), Wynn (narrow moat), and MGM (no moat), respectively. We rate Sands as near fair value but Wynn and MGM as undervalued. We think shares of all three might remain volatile until China moves further beyond its restrictive pandemic policy, which could occur in early 2023 when new government leadership positions take office.