MGM Resorts International: A Good Bet
Las Vegas has changed a lot since the days when Frank Sinatra’s Rat Pack ruled the town. But one company that was a prominent player five decades ago remains a powerful force today: MGM Resorts International (NYSE: MGM).
MGM is one of the world’s leading hospitality companies. In addition to the famous MGM Grand Hotel on the Strip, it operates several other well-known Vegas casinos, including the Bellagio, Mandalay Bay and the Mirage. It’s the second-biggest gaming company by revenue—about $7 billion last year. Only Caesars Entertainment (NASDAQ: CZR) is larger.
Despite the iconic acronym in its name, MGM Resorts is not involved in movie production; MGM Studios is a separate, privately held company.
In the first quarter, the company’s total revenue grew 3 percent year over year to $2.4 billon, which exceeded the consensus estimate. Higher revenues from both domestic and foreign markets boosted total revenue in the quarter.
The travel and leisure industry always takes a big hit during a recession; it’s a lot easier for individuals to cut back on vacation plans than on food, shelter, clothing and other necessities. Businesses also scale back their spending on conventions. President Obama came under fire from Nevadans a couple of years ago when he said, “You don’t blow a bunch of cash in Vegas when you’re trying to save for college.”
But as the economy recovers, the scope for recovery in the travel/tourism business is larger than in other sectors of the economy. Convention bookings by businesses are already running well ahead of the last few years’ pace.
MGM Resorts is taking steps to strengthen its loyalty program, an important aspect of the tourism industry. It has formed a venture with Hyatt Hotels Corp (NYSE: H) to reinvigorate their respective loyalty programs—MGM Resorts’ M life program and Hyatt Gold Passport. MGM’s social gaming site myVEGAS.com, which it operates in association with Play Studios, is expected to expand.
MGM recently closed a deal to build a new arena project in Vegas, which will be the centerpiece of a revitalization of the area between the New York-New York and Monte Carlo casinos, extending from Las Vegas Blvd. to Frank Sinatra Drive.
The arena is expected to break ground in summer 2014, with the grand opening projected for spring 2016. The project is anticipated to cost approximately $350 million and be financed with equity contributions from each of the partners as well as privately funded third-party financing.
“Finalizing our agreement and selecting Populous, a world-class design firm, as the architect of this project are important milestones in this process,” said Jim Murren, MGM Resorts Chief Executive Officer. “The combination of MGM and AEG, along with the excellent Las Vegas Strip location, is already driving interest from potential investors in this exciting new development.”
MGM is also increasing its geographical diversification, a good move that will protect it from a regional downturn in the Las Vegas area. The company is the principal owner of the Borgata in Atlantic City, and it also has casinos in Mississippi, Michigan and seven other states. One positive effect of the recession—at least from the gaming industry’s perspective—is that cash-strapped states have continued to loosen restrictions about gambling within their borders.
Rising in the East
But over time, the biggest growth area for gaming will be overseas, particularly China and its environs. MGM has a 51 percent interest in MGM China Holdings Ltd (OTC: MCHVF), which owns the MGM Macau casino and is in the process of developing a resort on Cotai.
Cotai was created to provide Macau with a new gambling and tourism area since Macau is so densely populated and land is scarce. The Cotai Strip is the name used more commonly for this area where many casinos and hotels are currently being built. China and India are ascending as economic powers, and newly wealthy individuals from these countries need someplace to gamble their money away.
Caesars Entertainment, MGM’s principal rival, missed the boat to Macau, so this is an area where MGM can really generate profits.
Through its hospitality management subsidiary, MGM Resorts International holds a growing number of development and management agreements for casino and non-casino resort projects around the world.
Online gaming has become hugely popular, as my colleague John Persinos explains in his July 8 article on Investing Daily. And this activity’s cousin, online gambling, has become increasingly mainstream in recent years.
After opposing online gambling for years, the federal government said in 2011 states could issue licenses, but must limit gambling to residents who live within that state. MGM is in the process of obtaining permits to run online poker and other activities in New Jersey, Nevada and Delaware.
One doesn’t usually think of “casinos” and “environmentalism” in the same sentence. But MGM and NRG Energy (NYSE: NRG) recently announced the planned installation of one of the largest rooftop solar photovoltaic arrays in the world at the Mandalay Bay Resort Convention Center in Las Vegas.
The 6.2-megawatt installation will be MGM Resorts’ first commercial solar project in the United States and will generate enough electricity to power the equivalent of 1,000 homes.
At peak production, the rooftop array is expected to produce nearly 20 percent of the Mandalay Bay’s power demand. This in turn will also lower demand on the southern Nevada electricity grid at the hottest time of the day, decreasing the need to import energy from outside the local energy system.
“Integrating environmentally responsible practices throughout our operations has been a key pillar in MGM Resorts’ strategic sustainability plan,” Murren said. “Partnering with NRG Solar to install the solar rooftop at Mandalay Bay is part of a comprehensive effort to promote renewable energy.”
As noted above, the travel/tourism business can be more subject to cyclical swings than other industries. But if you’re looking for a way to profit from the improving economy, MGM is an excellent gamble.
Thomas Scarlett is an investment analyst at Personal Finance and its parent website, Investing Daily.
MGM is one of the world’s leading hospitality companies. In addition to the famous MGM Grand Hotel on the Strip, it operates several other well-known Vegas casinos, including the Bellagio, Mandalay Bay and the Mirage. It’s the second-biggest gaming company by revenue—about $7 billion last year. Only Caesars Entertainment (NASDAQ: CZR) is larger.
Despite the iconic acronym in its name, MGM Resorts is not involved in movie production; MGM Studios is a separate, privately held company.
In the first quarter, the company’s total revenue grew 3 percent year over year to $2.4 billon, which exceeded the consensus estimate. Higher revenues from both domestic and foreign markets boosted total revenue in the quarter.
The travel and leisure industry always takes a big hit during a recession; it’s a lot easier for individuals to cut back on vacation plans than on food, shelter, clothing and other necessities. Businesses also scale back their spending on conventions. President Obama came under fire from Nevadans a couple of years ago when he said, “You don’t blow a bunch of cash in Vegas when you’re trying to save for college.”
But as the economy recovers, the scope for recovery in the travel/tourism business is larger than in other sectors of the economy. Convention bookings by businesses are already running well ahead of the last few years’ pace.
MGM Resorts is taking steps to strengthen its loyalty program, an important aspect of the tourism industry. It has formed a venture with Hyatt Hotels Corp (NYSE: H) to reinvigorate their respective loyalty programs—MGM Resorts’ M life program and Hyatt Gold Passport. MGM’s social gaming site myVEGAS.com, which it operates in association with Play Studios, is expected to expand.
MGM recently closed a deal to build a new arena project in Vegas, which will be the centerpiece of a revitalization of the area between the New York-New York and Monte Carlo casinos, extending from Las Vegas Blvd. to Frank Sinatra Drive.
The arena is expected to break ground in summer 2014, with the grand opening projected for spring 2016. The project is anticipated to cost approximately $350 million and be financed with equity contributions from each of the partners as well as privately funded third-party financing.
“Finalizing our agreement and selecting Populous, a world-class design firm, as the architect of this project are important milestones in this process,” said Jim Murren, MGM Resorts Chief Executive Officer. “The combination of MGM and AEG, along with the excellent Las Vegas Strip location, is already driving interest from potential investors in this exciting new development.”
MGM is also increasing its geographical diversification, a good move that will protect it from a regional downturn in the Las Vegas area. The company is the principal owner of the Borgata in Atlantic City, and it also has casinos in Mississippi, Michigan and seven other states. One positive effect of the recession—at least from the gaming industry’s perspective—is that cash-strapped states have continued to loosen restrictions about gambling within their borders.
Rising in the East
But over time, the biggest growth area for gaming will be overseas, particularly China and its environs. MGM has a 51 percent interest in MGM China Holdings Ltd (OTC: MCHVF), which owns the MGM Macau casino and is in the process of developing a resort on Cotai.
Cotai was created to provide Macau with a new gambling and tourism area since Macau is so densely populated and land is scarce. The Cotai Strip is the name used more commonly for this area where many casinos and hotels are currently being built. China and India are ascending as economic powers, and newly wealthy individuals from these countries need someplace to gamble their money away.
Caesars Entertainment, MGM’s principal rival, missed the boat to Macau, so this is an area where MGM can really generate profits.
Through its hospitality management subsidiary, MGM Resorts International holds a growing number of development and management agreements for casino and non-casino resort projects around the world.
Online gaming has become hugely popular, as my colleague John Persinos explains in his July 8 article on Investing Daily. And this activity’s cousin, online gambling, has become increasingly mainstream in recent years.
After opposing online gambling for years, the federal government said in 2011 states could issue licenses, but must limit gambling to residents who live within that state. MGM is in the process of obtaining permits to run online poker and other activities in New Jersey, Nevada and Delaware.
One doesn’t usually think of “casinos” and “environmentalism” in the same sentence. But MGM and NRG Energy (NYSE: NRG) recently announced the planned installation of one of the largest rooftop solar photovoltaic arrays in the world at the Mandalay Bay Resort Convention Center in Las Vegas.
The 6.2-megawatt installation will be MGM Resorts’ first commercial solar project in the United States and will generate enough electricity to power the equivalent of 1,000 homes.
At peak production, the rooftop array is expected to produce nearly 20 percent of the Mandalay Bay’s power demand. This in turn will also lower demand on the southern Nevada electricity grid at the hottest time of the day, decreasing the need to import energy from outside the local energy system.
“Integrating environmentally responsible practices throughout our operations has been a key pillar in MGM Resorts’ strategic sustainability plan,” Murren said. “Partnering with NRG Solar to install the solar rooftop at Mandalay Bay is part of a comprehensive effort to promote renewable energy.”
As noted above, the travel/tourism business can be more subject to cyclical swings than other industries. But if you’re looking for a way to profit from the improving economy, MGM is an excellent gamble.
Thomas Scarlett is an investment analyst at Personal Finance and its parent website, Investing Daily.