Vegas And Macau Declines Will Limit Gains Yet Kindle Optimism

Key Takeaways

• Expansion in digital betting and international resorts drives growth, but faces risks from regulatory uncertainty, changing entertainment trends, and exposure to volatile global markets.
  
• Investments in property upgrades and brand partnerships boost revenues, yet ongoing costs, shifting consumer behaviors, and tightening regulations threaten margin stability and long-term market reach.
  
• Choppy visitation, heavy renovation spending, digital competition, climate risks, and regulatory challenges abroad all threaten stable revenue growth and margin expansion for MGM.

Catalysts

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

• While MGM's digital and sports betting operations, especially through BetMGM, are achieving strong top-line expansion driven by increased consumer adoption of online gaming and more efficient marketing, continued growth in remote and immersive home entertainment alternatives like VR and esports may ultimately limit the long-term growth ceiling for brick-and-mortar and omnichannel gaming, which could cap improvements in consolidated revenue and earnings.
  
• Although investment in international resorts, notably in Macau and the fully licensed Osaka project, offers substantial revenue diversification amid expanding leisure spending from an affluent global middle class, MGM faces mounting exposures to regulatory, operational, and property risk in regions with unpredictable legal frameworks and possible climate vulnerability, threatening net margin stability and potentially resulting in future asset write-downs.
  
• While MGM's strategic relationship with Marriott and heavy group/convention bookings are expected to drive high-value customer traffic and improved room revenues, the rise of remote work, evolving traveler preferences, and international visitation headwinds could undermine long-term occupancy rates and revenue per available room, particularly at value-oriented properties.
  
• Even as the company's asset-light real estate model and active capital recycling have produced robust cash flows that facilitate ongoing development and buybacks, persistent high capital expenditures for property renovations and technology upgrades-combined with the need to compete with digital-first rivals-risk compressing future net margins as assets age and competitive pressures intensify.
  
• While the acceleration of digital initiatives and branding investments in markets like Brazil signal continued international potential, global public health concerns and social backlash against gambling could prompt stricter regulation and higher compliance costs, threatening to limit MGM's addressable market and erode long-term revenue growth and margin expansion.

MGM Resorts International Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on MGM Resorts International compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming MGM Resorts International's revenue will decrease by 0.4% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 3.1% today to 3.9% in 3 years time.
• The bearish analysts expect earnings to reach $670.2 million (and earnings per share of $2.95) by about August 2028, up from $536.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 17.1x on those 2028 earnings, down from 17.3x today. This future PE is lower than the current PE for the US Hospitality industry at 22.5x.
• 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 12.32%, as per the Simply Wall St company report.

MGM Resorts International Future Earnings Per Share Growth

Risks

• Sustained declines in Las Vegas Strip visitation, especially among value-oriented and international customers, could pressure MGM's core revenue streams and compress net margins if not offset by premium segment growth.
  
• Heavy capital expenditure requirements for ongoing renovations (such as the MGM Grand and future projects like Aria) risk eroding net income and free cash flow over the long-term, especially if demand cycles remain choppy or competition intensifies.
  
• Expanding digital gaming and sports betting ventures expose MGM to mounting competition from pure digital operators and regulatory shifts, threatening BetMGM's projected market share and limiting recurring revenues if digital environments consolidate or regulations tighten.
  
• Overreliance on physical assets in geographies vulnerable to climate disruption (notably Las Vegas and Macau) and the increasing frequency of natural disasters could result in higher insurance costs and operational disruptions, impacting both long-term profitability and physical asset values.
  
• Rapid international expansion, particularly in Asia (Japan, Macau, Singapore) and new digital markets like Brazil, could expose MGM to unpredictable regulatory environments, compliance costs, and potential loss write-offs, leading to revenue volatility and risks to consistent earnings growth.

Valuation

• The assumed bearish price target for MGM Resorts International is $37.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of MGM Resorts International's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $58.0, and the most bearish reporting a price target of just $37.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $17.4 billion, earnings will come to $670.2 million, and it would be trading on a PE ratio of 17.1x, assuming you use a discount rate of 12.3%.
  
• Given the current share price of $34.18, the bearish analyst price target of $37.0 is 7.6% 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.