Rewards Expansion And Marriott Partnership Will Ignite New Opportunities

Key Takeaways

• Strategic expansions and partnerships, such as with Marriott, aim to drive sustainable growth through increased occupancy and enhanced loyalty programs.
  
• International developments in Macau and Japan, along with cost-saving initiatives, promise long-term revenue growth and margin improvements.
  
• Economic and regulatory challenges may strain margins and resources, impacting investment returns, revenue growth, and future capital allocation for MGM Resorts International.

Catalysts

Through its subsidiaries, operates as a gaming and entertainment company in the United States, China, and internationally.

• The continued expansion and success of the MGM Rewards program, which has grown to over 50 million members since 2020, highlights the potential for increased revenue from customer loyalty and omnichannel opportunities with BetMGM, which can drive sustainable growth.
  
• The strategic partnership with Marriott is expected to significantly boost room occupancy, driving higher revenue per available room, with projections of 900,000 room nights this year up from 660,000 last year, enhancing overall top-line growth.
  
• The $200 million EBITDA enhancement plan, with a focus on cost savings and revenue initiatives, is expected to contribute more than $150 million to 2025 earnings, demonstrating operational efficiencies and potentially improving net margins.
  
• The ongoing recovery and expansion in Macau, including the addition of new villas and suites, position MGM China to capitalize on demand from premium gaming customers, supporting increased revenue and margins in the long term.
  
• The development projects in Japan and potential opportunities in New York present significant growth avenues, with anticipated high returns, bolstering future earnings potential and diversifying revenue streams.

MGM Resorts International Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming MGM Resorts International's revenue will grow by 1.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.9% today to 4.4% in 3 years time.
• Analysts expect earnings to reach $793.7 million (and earnings per share of $3.17) by about May 2028, up from $674.6 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $980.2 million in earnings, and the most bearish expecting $536.4 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.5x on those 2028 earnings, up from 12.7x today. This future PE is lower than the current PE for the US Hospitality industry at 21.9x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.41%, as per the Simply Wall St company report.

MGM Resorts International Future Earnings Per Share Growth

Risks

• The potential impact of macroeconomic factors such as tariffs and supply chain disruptions could increase costs, affecting margins and earnings.
  
• Regulatory challenges in international markets like the Netherlands and potential increased costs related to Japan may affect investment returns and net margins.
  
• Increased competition and market saturation in Macau and the digital gaming space could impact market share and future revenue growth.
  
• The potential adverse impact on consumer spending and travel behavior due to economic volatility could affect occupancy rates and overall revenue from non-gaming sectors.
  
• Uncertainty regarding the finalization and cost control of large projects, such as those in Japan and New York, could strain resources and impact future capital allocation and cash flow.

Valuation

• The analysts have a consensus price target of $45.963 for MGM Resorts International based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $59.0, and the most bearish reporting a price target of just $35.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $18.0 billion, earnings will come to $793.7 million, and it would be trading on a PE ratio of 17.5x, assuming you use a discount rate of 11.4%.
  
• Given the current share price of $31.42, the analyst price target of $45.96 is 31.6% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.