The Future Is Bright As Global Expansion And Tactical Partnerships Drive Growth

Key Takeaways

• Strategic focus on organic growth, online operations, and cost review is expected to enhance margins and drive revenue growth.
  
• Geographical diversification and partnerships in new markets aim to boost top-line revenue and expand customer base globally.
  
• Dependence on high-end clientele and international ventures carries financial risks, while expense adjustments and investment strategies may pressure margins and profitability.

Catalysts

Through its subsidiaries, owns and operates casino, hotel, and entertainment resorts in the United States and internationally.

• MGM Resorts is focused on driving organic growth by reviewing costs and implementing strategic customer pricing initiatives which will likely enhance net margins.
  
• The company anticipates significant value generation from its online operations, both in North America through BetMGM and globally through MGM International and Digital, indicating expected revenue growth and improved earnings.
  
• MGM's expansion into new markets such as Brazil in digital operations and strategic partnerships, like the venture with Grupo Globo, suggests an increase in top-line revenue due to access to expansive new customer bases.
  
• The company is pursuing geographical diversification and growth through international development projects in Osaka, New York, and potential markets in the UAE and Thailand, which are expected to contribute to future earnings and spatial market expansion.
  
• MGM is utilizing fixed rate interest with no near-term maturities and maintaining relatively flat capital expenditures, positioning themselves for favorable conditions in free cash flow and earnings stability while engaging in opportunistic share repurchase strategies to enhance shareholder earnings.

MGM Resorts International Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming MGM Resorts International's revenue will grow by 1.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.2% today to 6.5% in 3 years time.
• Analysts expect earnings to reach $1.2 billion (and earnings per share of $4.27) by about November 2027, up from $903.4 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $1.4 billion in earnings, and the most bearish expecting $630.4 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.0x on those 2027 earnings, up from 12.5x today. This future PE is lower than the current PE for the US Hospitality industry at 24.4x.
• Analysts expect the number of shares outstanding to decline by 3.11% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.86%, as per the Simply Wall St company report.

MGM Resorts International Future Earnings Per Share Growth

Risks

• The reliance on high-end baccarat customers has implications on stability; a significant decline or change in timing of their visits can greatly affect quarterly results, which could impact future revenues and earnings.
  
• The anticipated expenses related to Formula 1 events, including construction expenses that were previously capitalized, need to be expensed now, which might compress margins more than expected.
  
• An investment year for BetMGM in 2024 indicates higher operational costs and implies delayed profitability, which could impact net margins and earnings from the digital sector.
  
• A challenging comparison from the previous year's extraordinary hold percentage could present headwinds for quarterly earnings, particularly affecting EBITDAR in the high-end gaming segment.
  
• International ventures such as development investments in Japan, the UAE, and Thailand pose execution risks and significant capital expenditure implications, which could strain financial resources and net margins if not managed optimally.

Valuation

• The analysts have a consensus price target of $50.42 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 $56.0, and the most bearish reporting a price target of just $41.91.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $17.9 billion, earnings will come to $1.2 billion, and it would be trading on a PE ratio of 16.0x, assuming you use a discount rate of 10.9%.
  
• Given the current share price of $37.98, the analyst's price target of $50.42 is 24.7% 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.