MGM Resorts (NYSE: MGM) The company posted a stronger-than-expected set of Q1 2023 results last week, driven by strong business at its Las Vegas properties and improvements in Macau. While revenue rose 36% from the year-ago quarter to $3.87 billion, net income came in at $467 million, or $1.24 per share, well ahead of estimates. Growth was led by the company’s Las Vegas Strip properties, which saw revenue increase nearly 31% year-over-year to $2.2 billion, driven by the inclusion of The Cosmopolitan, a positive comparison with last year. Thi was the Omicron version of Covid-19. 19 was expanding and also due to higher average room revenue, although this was partially offset by sales of The Mirage. Hotel operations in Las Vegas in particular are performing well, with occupancy rising to 92% and average daily rates rising 32%. MGM is also seeing an improvement in Macau as pandemic restrictions in China are eased, the number of tourists to Macau has decreased and overall spending is now on the rise. For perspective, MGM’s casino revenues in this region grew 84% of Q1 2019 levels.
Now, MGM stock has seen a solid rally this year, rising nearly 30% year-to-date. So is the stock still a buy at current levels of around $43 per share? We believe it is. Although the stock trades at roughly 19x estimated 2024 earnings, which isn’t exactly cheap, there are a few factors that could help the stock. More recovery can be seen in Macau business. Total visitors to Macau reached nearly 5 million in the first quarter, representing approximately 48% of pre-pandemic levels. We should see considerable improvement in the coming quarters as airline capacity improves in this area. Although MGM’s exposure to Macau is lower than that of its peers, the recovery should help the company’s earnings. In addition, the company is also making progress with its interactive gaming initiative, with its BetMGM online sports betting and gaming platform expected to see 2o23 revenue of between $1.8 billion and $2 billion. Earlier this year the company launched in Ohio and Massachusetts, bringing BetMGM’s total presence to 26 markets. MGM is looking to expand into the Japanese market with a property in Osaka, scheduled to open around 2029 or 2030. We value MGM Resorts stock at approximately $50 per share, which represents an upside of about 13% from the current market price. see our analysis MGM Resorts Valuation: expensive or cheap for more information.
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