What can be expected of MGM Resorts' stock value in the subsequent five years?
What can be expected of MGM Resorts' stock value in the subsequent five years?
MGM Resorts (MGM up by 1.28%) excelled post-pandemic due to the revival of U.S. physical entertainment spots following lockdowns and restrictions. However, with Las Vegas gambling approaching its peak, the organization needs to explore international markets for the upcoming phase of extensive growth. Let's delve into potential developments over the next half-decade.
Thriving Operations
MGM's third-quarter profits showcase the impressive growth it has experienced since pandemic restrictions ended. Companywide revenue surged by 5% annually to reach a record $4.2 billion, mainly driven by improved health standards in Macau, the last major segment to surpass 2019 figures.
MGM maintains a presence in China via its subsidiary MGM Macau, which operates renowned resorts like MGM Cotai and MGM Macau in collaboration with local partners. Additionally, it dominates the Las Vegas casino market and possesses a portfolio of casino resorts in small and medium-sized American cities. The company's diverse portfolio shields it from weakness in specific regions.
What lies ahead in the next five years?
Despite Macau and Las Vegas potentially continuing as prominent gaming hubs, both markets are mature, and investors may not anticipate significant long-term expansion. While the recent five years benefited from post-pandemic growth, the next five years might see casino activities return to historical norms.
As a non-essential expense, the gambling industry is subject to economic fluctuations. People tend to reduce such spending during financial hardships. Although Goldman Sachs only forecasts a 15% recession probability in the following 12 months, the risk may increase over time. Consequently, MGM's growth might rely on establishing new markets.
In April 2023, the company secured approval for a $10 billion integrated resort on an artificial island in Osaka, Japan. The project, like its Chinese subsidiary, will be developed with local partner Orix Corporation, which could help facilitate financing and resolve potential political issues. With an anticipated 2029 launch, Morningstar's analysts predict an opening-year revenue of $5 billion (potentially rising over time).
These estimates need context. In the 2023 fiscal year, MGM generated $8.1 billion in revenue and will likely share Japanese revenues with local partners. While this project will contribute positively to MGM's growth, it isn't likely to be revolutionary.
Is MGM stock a worthwhile investment?
MGM's stock allure lies in its affordable cost. With a forward Price-Earnings (P/E) ratio of approximately 14, shares trade at a substantial discount compared to the S&P 500's predicted 23. Despite slowing sales and a cyclical business model, this discount seems to consider most future challenges.
MGM also focuses on enhancing shareholder value through a stock buyback program, with $1.3 billion spent on share repurchases so far in 2023 and a 40% reduction in shares outstanding since 2021. This strategy can increase earnings per share and make investors feel like they possess more company ownership. In essence, MGM's attractive pricing and substantial buybacks suggest share prices could increase over the next five years. But don't expect MGM to carry your entire portfolio.
Given MGM's strategic focus on expanding into international markets, particularly Japan, its finance team is exploring various investment opportunities to ensure sustainable growth. The company's collaborative venture with Orix Corporation in Osaka is expected to bring in significant revenues, potentially reaching $5 billion in its first year of operation.
As MGM looks towards the future, it will rely heavily on its investment in international markets to maintain its growth trajectory. With mature markets in Macau and Las Vegas, the company is seeking new sources of revenue to offset potential economic fluctuations, such as recessions, which can impact non-essential expenses like gambling.