Renovations And Digital Expansions Will Elevate Guest Experiences In The Future

Key Takeaways

• Strategic investments in renovations and premium spaces are poised to enhance guest visitation, boosting future revenue growth.
  
• Strong digital strategy and BetMGM expansion signal potential for significant earnings growth and positive market positioning.
  
• Renovation impacts, event headwinds, and competitive pressures challenge financial performance, with digital strategy execution risks and lower Macau profitability affecting overall earnings potential.

Catalysts

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

• MGM's strategic investments, including the renovation of Bellagio suites and premium gaming spaces, are expected to drive increased guest visitation and spend, positively impacting future revenue growth.
  
• The solid momentum in domestic operations, along with the continued growth of Average Daily Rates (ADRs), suggests a promising outlook for higher revenue and net margins.
  
• The BetMGM platform's strong performance and projected revenue growth to $2.4-$2.5 billion, with EBITDA turning positive in 2025, indicate a significant catalyst for earnings improvement.
  
• MGM's digital strategy, with the core LeoVegas business and expansion into Europe and Brazil, aims to achieve $1 billion in revenue and healthy margins, providing a path to future earnings growth.
  
• The investment in convention spaces, such as the $100 million Mandalay Bay Convention Center upgrade, and a strong bookings pipeline with over 2.2 million room nights for 2025, are expected to significantly boost revenue.

MGM Resorts International Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming MGM Resorts International's revenue will grow by 1.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.3% today to 4.6% in 3 years time.
• Analysts expect earnings to reach $837.1 million (and earnings per share of $3.16) by about April 2028, up from $743.7 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $1.1 billion in earnings, and the most bearish expecting $659.1 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.6x on those 2028 earnings, up from 11.5x today. This future PE is lower than the current PE for the US Hospitality industry at 22.4x.
• 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 ongoing renovation at MGM Grand will impact financial performance over the year, creating a temporary challenge for revenue and earnings as a result of reduced room availability during the renovation period.
  
• The Las Vegas operations are facing a $65 million headwind from the Super Bowl event year-over-year, which could challenge the ability to grow EBITDA in the first quarter relative to past performance.
  
• The company anticipates MGM Digital's EBITDAR losses in 2025 to remain consistent with 2024 due to increased spending in new markets like Brazil, potentially impacting net margins.
  
• There is execution risk in digital and new market strategies, with significant capital deployed into MGM Digital and BetMGM, which may not provide expected returns, particularly given competitive pressures in growing markets.
  
• Macau operations experienced lower profitability with a 4% year-on-year revenue growth, indicating challenges in this key international market that could affect overall earnings from international operations.

Valuation

• The analysts have a consensus price target of $46.805 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 $60.0, 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 $837.1 million, and it would be trading on a PE ratio of 17.6x, assuming you use a discount rate of 11.4%.
• Given the current share price of $30.28, the analyst price target of $46.81 is 35.3% 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.