MGM: Capital Allocation Shift and Macau Trends Will Drive Share Recovery

Analysts have slightly reduced their fair value estimate for MGM Resorts International to $44.15 from $44.21, citing recent price target adjustments due to mixed outlooks for both Las Vegas and Macau performance.

Analyst Commentary

Industry analysts recently weighed in on MGM Resorts International, offering both optimistic and cautious insights that reflect underlying trends in Las Vegas and Macau, as well as company-specific developments. Their commentary highlights the key factors shaping sentiment and valuation drivers for the stock.

• Some bullish analysts believe MGM's shares have already priced in much of the negative sentiment, particularly in regards to Las Vegas softness. This may potentially limit further downside as the company heads into its Q3 report.
• There is optimism over industry momentum in Macau, where certain trends have prompted slight upward adjustments to EBITDA estimates and target multiples. This offers support to earnings growth expectations.
• The withdrawal from the New York casino license process is seen as a positive step for capital allocation. It frees up significant funds that can be deployed elsewhere and improves financial flexibility.
• Recent price target increases from select firms underscore a belief in long-term execution strength and the possibility of market share gains.

• Several analysts have revised their price targets lower in response to continued signs of weakness in Las Vegas, as persistent year-over-year declines in revenue per available room may further pressure operating results.
• Disappointing performance during Macau's Golden Week and declining month-to-date revenue trends have raised concerns about the near-term trajectory for international operations and the broader tourism rebound.
• Analysts remain cautious given the modest pace of recovery in key markets, highlighting sequential softness in operating metrics and a potential for continued volatility in results through the next few quarters.
• Repeating guidance that Q3 in Las Vegas will closely resemble Q2's downturn, analysts question whether meaningful improvement is achievable in the short term. This challenges the speed of any earnings rebound.

What's in the News

• MGM Resorts and other Macau gaming operators saw share weakness as Macau prepares for its fourth major storm in five weeks, adding to operational uncertainty. (Macau Business reports)
• Cboe Global is entering the prediction market sector. This move is relevant to publicly traded sports gambling companies, including MGM Resorts. (Bloomberg)
• MGM Resorts and Playtech have expanded their "Live from Vegas" partnership with the launch of Family Feud, making it the first interactive game show broadcast live from an MGM Grand casino floor in Las Vegas for regulated markets outside the U.S.
• MGM Resorts completed the repurchase of over 51 million shares, about 17% of its outstanding shares. The total amount was approximately $1.87 billion under a buyback announced in November 2023.
• MGM Resorts was recently dropped from the FTSE All-World Index (USD), which may impact institutional investor sentiment.

Valuation Changes

• Fair Value Estimate: Decreased slightly to $44.15 from $44.21. This reflects a modest downward adjustment based on updated modeling inputs.
• Discount Rate: Increased to 12.5% from 12.32%. This signals a slightly higher risk premium applied to future cash flows.
• Revenue Growth: Projected annual revenue growth has risen to 2.82% from 1.95%. This indicates improved expectations for top-line expansion.
• Net Profit Margin: The forecast margin has increased to 3.78% from 3.43%. This suggests enhanced operational efficiency and profitability outlooks.
• Future P/E Ratio: Lowered to 19.39x from 21.83x. This points to a more conservative view on forward earnings multiples for MGM Resorts International.