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MGM Resorts International MGM

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Economic Moat




MGM Green Shoots Emerging From a Severely Challenged Near-Term Environment; Shares Cheap

Dan Wasiolek Senior Equity Analyst

Analyst Note

| Dan Wasiolek |

COVID-19 dealt no-moat MGM a hard hand in the second quarter, as its U.S. (79% of 2019 EBITDAR) and Macau (21%) resorts largely remained suspended, resulting in a 91% decline in sales (versus a 97% drop for narrow-moat LVS). Further, the recent reacceleration in COVID-19 cases has led to U.S. industry hotel occupancy and air passenger volumes stagnating in mid-July after roughly three months of steady improvement. Additionally, quarantine efforts in Macau have lingered longer than previously expected, leading us to lower our industry gross gaming revenue 2020 forecast to a mid-50% decline from a mid-40% drop prior. And although we still expect a full revenue recovery in Las Vegas and Macau by 2023 and early 2022, respectively, we still expect to reduce our $32 fair value estimate by around a mid-single-digit percentage, keeping shares at an attractive level.

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Company Profile

Business Description

MGM Resorts is the largest resort operator on the Las Vegas Strip with 35,000 guest rooms and suites, representing about one fourth of all units in the market. The company's Vegas properties include MGM Grand, Mandalay Bay, Mirage, Luxor, New York-New York, and a 50% ownership stake in CityCenter. The Strip constituted approximately 47% of total EBITDAR in 2019. We estimate MGM will open a resort in Japan in 2026. The company also operates the 56%-owned MGM Macau casinos with a new property that opened on the Cotai Strip in early 2018.

3600 Las Vegas Boulevard South
Las Vegas, NV, 89109
T +1 702 693-7120
Sector Consumer Cyclical
Industry Resorts & Casinos
Most Recent Earnings Jun 30, 2020
Fiscal Year End Dec 31, 2020
Stock Type Cyclical
Employees 70,000