Company Reports

No-moat MGM Resorts' Macao's (17% of 2023 EBITDAR) sales rebounded sharply in 2023 (reaching back above 2019's level in the second quarter) after the Chinese government removed covid restrictions on Jan. 8, 2023. And although Macao faces elevated operational risk from government oversight, the company remains positioned for the attractive long-term growth opportunities in the region. Further, MGM's leading omnichannel presence in the US should aid it in the highly competitive sports betting and iGaming growth markets. Also, we expect the company to have a Japanese integrated resort in 2030, accounting for an estimated 3% of total EBITDAR that year and generating attractive returns on invested capital in the low teens.

No-moat MGM’s shares declined 5% in July 31 after-hours trading, which we believe was tied to guidance that a low-double-digit return on investment for its digital business will not occur until around 2027, likely due to intense competition. We plan to lower our $55 fair value estimate by a mid-single-digit percentage on lower digital margins during 2024-28. While we rate shares as undervalued even after the lowered valuation, we think performance could be hindered until near-term visibility around MGM’s digital position is improved, which we see as a 2025 event at the earliest.

No-moat MGM’s and Entains jointly owned online gaming entity, BetMGM, reported first-half results, which we believe showcase that it and others continue to face an uphill battle in supplanting leaders FanDuel and no-moat DraftKings.

No-moat MGM Resorts' Macao's (17% of 2023 EBITDAR) sales rebounded sharply in 2023 (reaching back above 2019's level in the second quarter), after the Chinese government removed covid restrictions on Jan. 8, 2023. And although Macao faces elevated operational risk from government oversight, the company remains positioned for the attractive long-term growth opportunities in the region. Further, MGM's leading omnichannel presence in the US should aid it in the highly competitive sports betting and iGaming growth markets. Also, we expect the company to have a Japanese integrated resort in 2030, accounting for an estimated 5% of total EBITDAR that year and generating attractive returns on invested capital in the low teens.

No-moat MGM Resorts' first quarter showcased solid Vegas and Macao results, offsetting near-term weakness in the US digital business due to incremental competition and a product under construction. We don’t expect to meaningfully change our forecast or the firm’s $55 fair value estimate, leaving shares undervalued.

Pennsylvania and Michigan released sports wagering and revenue data through February, including individual operator performance. The data supports our view that no-moat Penn is grabbing share at the hands of no-moat peers MGM and Caesars, while no-moat DraftKings adds to its leading position due to first mover and technology advantages. In fact, since launching ESPNBet in November, Penn has averaged a 4- and 7-percentage-point sports revenue share improvement over the prior year in Pennsylvania and Michigan, respectively, reaching a high-single-digit share of both markets and aligning with our forecast. Meanwhile, MGM’s share over the same time is lower by 3 and 5 percentage points; Caesars’ is flat and down 3 percentage points; and smaller competitors are collectively lower by 3 and 3 percentage points. Conversely, DraftKings’ share is up 7 and 11 percentage points.

Thailand moved closer to legalized gambling this month with the completion of a gaming draft bill, setting the stage for a law as soon as this year, based on reports of strong government support. We don’t believe the prospect of Thailand gaming resorts will have any material impact on demand for casinos in Macao, Singapore, or Japan for the foreseeable future. We are maintaining our fair value estimates of $61 for narrow-moat Las Vegas Sands, $122 for narrow-moat Wynn Resorts, and $55 for no-moat MGM Resorts. We rate all three as undervalued.

No-moat MGM Resorts' Macao's (17% of 2023 EBITDAR) sales rebounded sharply in 2023 (reaching back above 2019's level in the second quarter), after the Chinese government removed covid restrictions on Jan. 8, 2023. And although Macao faces elevated operational risk from government oversight, the company remains positioned for the attractive long-term growth opportunities in the region. Further, MGM's leading omnichannel presence in the US. should aid it in the sports betting and iGaming growth markets. Also, we expect the company to have a Japanese integrated resort in 2030, accounting for an estimated 5% of total EBITDAR that year.

We don’t plan to materially change our no-moat MGM Resorts $55 fair value estimate, leaving shares slightly undervalued after digesting fourth-quarter and fiscal 2023 results. Total revenue grew 23% in 2023 to $16.2 billion versus our $15.9 billion estimate, with adjusted EBITDA matching our $4.6 billion forecast.

BetMGM, which is equally owned by no-moat MGM and Entain, announced its sport betting and iGaming revenue grew 36% in 2023 to $1.96 billion, near our $2 billion forecast. We calculate BetMGM’s revenue share of the $16.6 billion U.S. sports betting and iGaming industry last year (by our estimate) was stable at around 12%, good for third in the market behind FanDuel’s roughly 30% and no-moat DraftKings’ low 20%. But in our view, 2024 presents a more intense competitive landscape, driven by the launch of ESPNBet last November, which is has partnered with no-moat Penn. Early state data from Pennsylvania and Michigan show that ESPNBet has had early success in gaining a few percentage points of revenue share from BetMGM. As a result, we continue to forecast BetMGM’s revenue share drops toward 11% this year before stabilizing around those levels thereafter. Still, we remain optimistic that BetMGM’s omnichannel presence can differentiate it from others, allowing it to be a key beneficiary of the U.S. sports betting and iGaming market, which we see ramping to more than $40 billion in sales by the end of this decade. And we are encouraged with BetMGM’s EBITDA having inflected into positive territory during each of the final three quarters of 2023 and believe that margins can eclipse 20% in the back half of this decade even amid competition.

Entain’s Dec. 4 update on digital gaming company BetMGM, of which no-moat MGM Resorts International owns 50%, included in-line 2023 results but optimistic goals for the long term, in our view. We don’t plan to adjust our $55 fair value estimate for MGM; we view the shares as undervalued, offering investors an opportunity to own a company with a leading physical and digital presence in U.S. gaming.

No-moat MGM Resorts' Macao (22% of prepandemic 2019 EBITDAR) sales have rebounded sharply in 2023 (reaching back above 2019's level in the second quarter), after the Chinese government removed COVID-19 restrictions on Jan. 8, 2023. And although Macao faces elevated operational risk from government oversight, the company remains positioned for the attractive long-term growth opportunities in the region. Further, MGM's leading omnichannel presence in the U.S. should aid it in the sports betting and iGaming growth markets. Also, we expect the company to have a Japanese integrated resort in 2030, accounting for an estimated 5% of total EBITDAR that year.

We don’t plan a meaningful change to our $53 fair value estimate for no-moat MGM and view shares as undervalued. We think concerns over cybersecurity issues have been overblown and unlikely to have a lasting impact on financials.

No-moat MGM Resorts' Macao (22% of prepandemic 2019 EBITDAR) sales are set to rebound sharply in 2023 (reaching back above 2019's level in the second quarter), after the Chinese government removed COVID-19 restrictions on Jan. 8, 2023. And although Macao faces elevated operational risk from government oversight, the company remains positioned for the attractive long-term growth opportunities in the region. Further, MGM's leading omnichannel presence in the U.S. should aid it in the sports betting and iGaming growth markets. Also, we expect the company to have a Japanese integrated resort in 2030, accounting for an estimated 5% of total EBITDAR that year.

We expect to increase no-moat MGM’s $51 fair value estimate by around $1 per share on stronger Macau results, mitigated by mixed results in the company’s domestic portfolio (the reason we think shares fell 6% afterhours).

There was a lot to like in BetMGM’s (50% owned by no-moat MGM) first-half 2023 update, which showcased growing revenue and profitability. We think BetMGM/MGM’s omnichannel presence positions it to be one of the long-term winners in the North American sports betting and iGaming markets, which we see reaching $40 billion in sales by the end of the decade versus just over $13 billion in 2022. We maintain MGM’s $51 fair value estimate, leaving shares near fair value.

No-moat MGM Resorts' Macao (22% of prepandemic 2019 EBITDAR) sales are set to rebound sharply in 2023, after the Chinese government removed COVID-19 restrictions on Jan. 8, 2023. And although Macao faces elevated operational risk from government oversight, the company remains positioned for the attractive long-term growth opportunities in the region. Further, MGM's leading omnichannel presence in the U.S. should aid it in the sports betting and iGaming growth markets. Also, we expect the company to have a Japanese integrated resort in 2030, accounting for an estimated 5% of total EBITDAR that year.

We think MGM Resorts investors have a lot to cheer about, led by a demand recovery in Macau and a Japan resort on the horizon (with a planned 2030 opening). MGM Resorts' Macau gaming revenue and EBITDAR recovered to 78% and 88% of 2019’s level, respectively. Gaming revenue outpaced the nearly 50% rebound in industry gross gaming revenue in the period, as the company is benefitting from a recent increase in table allocation, remodeling and renovation of its gaming floors and suite product, efforts to utilize data analytics, and the temporary effect of some peer room supply remaining offline. We think MGM will be able to hold some of its recent share gains and plan to lift our 2023 Macau sales growth forecast to 140% from 115%. We also plan to lift our 2023 Macau EBITDAR margin estimate to the mid-20s from 19%, as cost efficiencies and mix shift to higher margin mass play and VIP direct bets prove stronger than our previous prognosis.

On April 14, 2023, Japan’s government approved the MGM/Orix plan to develop an integrated resort in the city of Osaka. The news comes nearly a year after the Osaka government submitted the bid to the national government. In our view, the resort will be the country’s only urban gaming license, providing a rich opportunity for MGM. In fact, we estimate that the property (40% owned by MGM, 40% by Orix, and 20% by a consortium of 20 companies) will generate around $4 billion in total sales in 2029 (its first year of operation) with EBITDA margins in the 20s around the end of the decade, generating a return on invested capital in the teens. In total, we see the property generating a high-single-digit percentage of company EBITDA by the end of our 10-year forecast. Having a Japan integrated resort already in our prognosis, we don’t envision any material change to our $50 fair value estimate but will reevaluate after MGM’s first-quarter earnings results on May 1. We see shares as slightly undervalued.

No-moat MGM Resorts' Macao (22% of prepandemic 2019 EBITDAR) sales are set to rebound sharply in 2023, after the Chinese government removed COVID-19 restrictions on Jan. 8, 2023. And although Macao faces elevated operational risk from government oversight, the company remains positioned for the attractive long-term growth opportunities in the region. Further, MGM's leading omnichannel presence in the U.S. should aid it in the sports betting and iGaming growth markets. Also, we expect the company to have a Japanese integrated resort in 2029, accounting for an estimated 8% of total EBITDA that year.