MGM Resorts appears to be strengthening its US presence while Las Vegas Sands and Wynn receive more and more of their revenue from China. Rumors suggest that LVS is preparing to sell its Bethlehem, PA, casino and MGM appears to be the buyer. And this would be a perfect fit for MGM Resorts. A transaction like this would strengthen its position in the eastern portion of the US while continuing to maintain a stronghold on its home base in Las Vegas.
Unlike Las Vegas Sands and Wynn, which now derive the greatest part of their revenues from their casinos in Macau, MGM only generates 20% of its $9.5 billion in annual revenues from the Chinese gambling enclave. Instead, it's focused mainly on Las Vegas, where 59% of its revenues originated last year, and on its regional resorts in Michigan, Missouri, Maryland, and New Jersey, from which it derived another 16%.
For a few reasons, MGM should see that domestic percentage rise this year. In August, it took full possession of the Borgata in Atlantic City, and its National Harbor resort in Baltimore opened its doors in December. Adding Bethlehem to that portfolio would mesh with its broad plan to develop U.S. resorts of world-class caliber, including its new casino in Springfield, Massachusetts, which is on track to open next year.
Sands Bethlehem is arguably one of the most successful casinos of the dozen that operate in Pennsylvania. Located 70 miles south and west of New York City on the site of the former Bethlehem Steel Works plant, the resort features approximately 145,000 square feet of gaming space, 180 table games and more than 3,100 slot machines. It also has a hotel with 300 rooms; 150,000 square feet of retail space; an arts and cultural center; and a 50,000-square-foot event center.
MGM Resorts International owns and/or operates casino resorts in the United States and China. The company operates through two segments, Domestic Resorts and MGM China. Its casino resorts offer gaming, hotel, convention, dining, entertainment, retail, and other resort amenities. Its casino operations include various slots, table games, and race and sports book wagering. The company operates 14 wholly owned resorts in the United States; and MGM Macau resort and casino in China, as well as develops an integrated casino, hotel, and entertainment resort on the Cotai Strip, Macau. The company also owns and operates Shadow Creek golf course, Primm Valley Golf Club, and Fallen Oak golf course. The company serves premium gaming customers; leisure and wholesale travel customers; business travelers; and group customers, including conventions, trade associations, and small meetings. The company was formerly known as MGM MIRAGE and changed its name to MGM Resorts International in June 2010. MGM Resorts International was founded in 1986 and is based in Las Vegas, Nevada.
(Summary) (Company) (Chart)
26 March 2017
1yr Target $33.28
Payout Ratio 22.91%
1yr Cap Gain 29.44%
1yr Tot Return 31.15%
EPS (ttm) $1.92
EPS next yr $1.57
Forward P/E 16.36
EPS next 5yr 34.82%
1yr Price Support $54.66
Market Cap $14.76 Bil
Revenues $9.46 Bil
Earnings $1.10 Bil
Profit Margin 11.62%
Quick Ratio 0.90
Current Ratio 1.00
1yr RevGR 2.28%
3yr RevGR -1.21%
5yr RevGR 3.79%
1yr EarnGR ---
3yr EarnGR ---
5yr EarnGR -19.33
1yr DivGR ---
3yr DivGR ---
5yr DivGR ---
MGM Resorts has two reportable segments: domestic resorts and MGM China. The company currently owns and operates 14 resorts in the United States. MGM China’s operations consist of the MGM Macau resort and casino and the development of an integrated casino, hotel, and entertainment resort on the Cotai Strip in Macau.
MGM Resort's casino resorts offer gaming, hotel, convention, dining, entertainment, retail and other resort amenities. The company owns and invests in several of the finest casino resorts in the world and they continually reinvest in their resorts to maintain a competitive advantage. The company makes significant investments in their resorts through newly remodeled hotel rooms, restaurants, entertainment and nightlife offerings, as well as other new features and amenities. Most of their revenue is cash-based, through customers wagering with cash or paying for non-gaming services with cash or credit cards. The company relies heavily on the ability of the resorts to generate operating cash flow to fund capital expenditures, provide excess cash flow for future development, acquisitions or investments, and repay debt financings.
The company believes they operate the highest quality resorts in each of the markets in which they operate. Ensuring these resorts are premier resorts in their respective markets requires capital investments and the quality of the resorts is measured by the company's success in winning numerous awards, both domestic and globally, including several Four and Five Diamond designations from the American Automobile Association as well as multiple Four and Five Star designations from Forbes Travel Guide.
Results of operations tend not to be seasonal in nature, though a variety of factors may affect the results of any interim period, including the timing of major conventions, the amount and timing of marketing and special events for our high-end gaming customers, and the level of play during major holidays, including New Year and Chinese New Year. While results don't depend on key individual customers, a significant portion of operating income is generated from high-end gaming customers. In addition, success in marketing to customer groups such as convention customers and the financial health of customer segments such as business travelers or high-end gaming customers from a specific country or region can affect results.
All of the casino resorts operate 24 hours a day, every day of the year, with the exception of Grand Victoria which operates 22 hours a day. At domestic resorts, casino and hotel operations are owned and managed by MGM Resorts. Other resort amenities may be owned and operated by MGM, owned but managed by third parties, or leased to third parties.
The Domestic Resorts. Over half the net revenue from domestic resorts is derived from non-gaming operations, including hotel, food and beverage, entertainment and other non-gaming amenities. The company markets to different customers and utilizes significant convention and meeting facilities to maximize hotel occupancy and customer volumes which also leads to better labor utilization. The operating results are highly dependent on the volume of customers at the resorts, which in turn affects the price that can be charged for hotel rooms and other amenities.
Casino operations feature a variety of slots, table games, and race and sports book wagering. In addition, the company offers premium players access to high-limit rooms and lounge experiences where players may enjoy an upscale atmosphere.
Customers include premium gaming customers, leisure and wholesale travel customers, business travelers, and group customers, including conventions, trade associations, and small meetings. MGM Resorts has a complete portfolio of resorts which appeal to the upper end of each market segment and also cater to leisure and value-oriented tour and travel customers. Many of the resorts have significant convention and meeting space which drives business to the resorts during mid-week and off-peak periods.
The Las Vegas casino resorts compete for customers with a large number of other hotel casinos including major hotel casinos on or near the Las Vegas Strip, major hotel casinos in the downtown area, and several major hotel casinos elsewhere in the Las Vegas area. The company's Las Vegas Strip resorts also compete with each other. According to the Las Vegas Convention and Visitors Authority, there were approximately 149,300 and 149,200 guest rooms in Las Vegas at December 31, 2016 and 2015, respectively. At December 31, 2016, MGM Resorts operated approximately 27% of the guestrooms in Las Vegas.
Outside Nevada, MGM Resorts primarily compete with other hotel casinos in their markets and for customers in surrounding regional gaming markets, where location is a critical factor to success. In addition, the company competes with gaming operations in surrounding jurisdictions and other leisure destinations in each region.
M-Life Rewards, our customer loyalty program, is a broad-based program recognizing and rewarding customer spending across many channels focusing on wallet share capture and increased loyalty through unique benefits and rewards. M-Life Rewards provides access to members only events and exclusive experiences. M-Life Rewards is a tiered program and allows customers to qualify for benefits across our participating resorts and in both gaming and non-gaming areas, encouraging customers to keep their total spend within our casino resorts. Members may earn points and/or Express Comps for their gaming play which can be redeemed at restaurants, box offices or the front desk at participating properties. Points may also be redeemed for free slot play on participating machines.
The company's direct marketing efforts utilize advanced analytic techniques that identify customer preferences and help predict future customer behavior, allowing us to make more relevant offers to customers, influence incremental visits, and help build lasting customer relationships.
The company also utilizes their world-class golf courses in marketing programs at the Las Vegas Strip resorts. The company's major Las Vegas resorts offer luxury suite packages that include golf privileges at Shadow Creek in North Las Vegas. In connection with the marketing activities, MGM Resorts also invites their premium gaming customers to play Shadow Creek on a complimentary basis. Marketing efforts at Beau Rivage in Biloxi, Mississippi benefit from the Fallen Oak golf course located 20 minutes north of Beau Rivage. Additionally, the company uses entertainment as a marketing tool.
MGM China. MGM Resorts acquired an additional 4.95% interest in MGM China Holdings Limited on September 1, 2016, which increased the company's ownership to approximately 56%. They also have a controlling interest in MGM China, which owns MGM Grand Paradise, the Macau company that owns and operates the MGM Macau resort and casino and the related gaming subconcession and land concession. MGM Resorts believes that their ownership interest in MGM China plays an important role in extending their reach internationally and fosters future growth and profitability. Macau is the world’s largest gaming destination in terms of revenue and MGM Resorts expects future growth in the Asian gaming market to drive additional visitation at MGM Macau and their future property on the Cotai Strip.
In October 2012, MGM Grand Paradise formally accepted the terms and conditions of a land concession contract from the government of Macau to develop MGM Cotai on an approximately 18 acre site on the Cotai Strip. Under the terms of the land concession contract, MGM Grand Paradise is required to build and open MGM Cotai by January 2018.
Construction of MGM Cotai commenced in 2013 and it is expected to open in the second half of 2017. China State Construction Corporation serves as the sole general contractor for the project. MGM Cotai will be an integrated casino, hotel and entertainment resort with capacity for up to 500 gaming tables, up to 1,500 slots, and featuring approximately 1,500 hotel rooms. The total estimated project budget is $3.3 billion.
The three primary customer segments in the Macau gaming market are VIP casino gaming operations, main floor gaming operations and slot machine operations. VIP gaming play is sourced both internally and externally. Externally sourced VIP gaming play is obtained through external gaming promoters who offer VIP players various services, such as extension of credit as well as complimentary hotel, food and beverage services. Gaming promoters operate VIP gaming rooms within the property. In exchange for their services, gaming promoters are compensated through payment of revenue-sharing arrangements and rolling chip turnover based commissions. In-house VIP players also typically receive a commission based on the program in which they participate. These clientele are acquired through our direct marketing efforts.
Unlike gaming promoters and in-house VIP players, main floor players do not receive commissions. The profit contribution from the main floor segment exceeds the VIP segment due to commission costs paid to gaming promoters. Gaming revenues from the main gaming floors have grown significantly in recent years and we believe this segment represents the most potential for sustainable growth in the future. To target premium main floor players in order to grow revenue and improve yield, MGM Resorts has introduced premium gaming lounges and stadium-style electronic table games terminals, which include both table games and slots, to the main floor gaming area. The amenities create a dedicated exclusive gaming space for the use of premium main floor players.
The company's key competitors in Macau include five other gaming concessionaires and sub-concessionaires. Additionally, the company faces competition at their Macau and Cotai properties from concessionaires who have expanded their operations, primarily on the Cotai Strip, with several openings having occurred during 2016 and additional openings expected during 2017.
In January 2017, MGM Macau launched M-Life Rewards with a focus on non-gaming rewards to cater to an increasing number of resort and leisure customers expected with the opening of the MGM Cotai property. For customers who are primarily focused on gaming, the Golden Lion Club will continue to provide benefits to a range of members from lower spending through the highest level VIP cash players. The structured rewards systems based on member value and tier level ensures that customers can progressively access the full range of services that the resort provides. Both programs, M-Life Rewards and Golden Lion Club are aspirational by design and uniquely focus on building a rewarding relationship with their customers, encouraging members to increase both visitation and spend.
In addition to the M-Life program, MGM Macau has also created and continues to expand several luxurious private gaming salons that provide distinctive, high-end environments for the VIP players brought to the resort through gaming promoters and the in-house VIP marketing team. MGM Macau has created a variety of incentive programs to reward gaming promoters for increased business and efficiency.
It appears that the shares of MGM have stumbled and opened up an opportunity for me to make some serious money over the next 12 to 18 months. A month ago when the stock was priced at $30 per share the numbers just didn't work for me. At the current price the one year total return looks juicy and there appears to be support for the stock just below where it sits today. Add in that they once again instituted a dividend and I start to take notice.
With support near $25.50 per share, today's price of $25.71 is right where I like to see it. I intend to start a position this week and grow it as fast as I can find available funds. Based upon the chart, it appears like the stock is consolidating so I may have a little time to accumulate a nice position but other investors are going to notice the price like I have soon enough.