Las Vegas is getting an NFL team, gaming revenue is returning to Macau, and economic improvements in both China and the U.S. are bringing people back to the casino table.
For a sprawling resort operator like MGM Resorts International (MGM), whose hotels, convention spaces and casinos line the streets Macau, Vegas, and increasingly in other U.S. cities, things could be worse.
"Usually when you see those kinds of factors taking place, that bodes well for our industry as a whole," MGM Chief Financial Officer Dan D'Arrigo told Investor's Business Daily.
In Las Vegas, MGM has more exposure in the city than any other rival. Thus, the company stands to gain as more businesses attend conventions, gamers attend "League of Legends" tournaments, tourists plot their buffet strategy and people come from L.A. to party or blow their savings from behind poker sunglasses.
"MGM is the best positioned operator to capture the growing trends in Las Vegas and faces many growth catalysts over the next few years that should generate stock price appreciation," Barclays analyst Felicia Hendrix said in a recent note to clients.
Those catalysts were likely on display when the company reported strong first-quarter earnings last month. It was helped by Vegas, Macau, the December opening of MGM National Harbor outside Washington, D.C., and the company's moves to bring Atlantic City, N.J.-based Borgata, under its umbrella. Management said it remained optimistic about the "market's recent uptick" in lucrative VIP gaming.
And in Macau, now the world's biggest gambling hot spot and the only place in China where it's legal, MGM plans to open a location this year on the casino-gilded Cotai Strip, its second in the region. The extra location, loaded with some 1,400 hotel rooms as well as spas and meeting spaces, would help the company offset some of the regulatory crackdown there, analysts say.
"There is a VIP rally underway in Macau," Telsey Advisory Group analyst David Katz told IBD.
Hospitality Amid Raiders
The casino glare tends to divert attention from an ongoing shift in Las Vegas' economy on which MGM has capitalized. That is the evolution away from the casino business toward hospitality, making the city one of the premiere destinations for conventions.
"MGM has pulled away as a clear leader in the (meetings and conventions) category with its expansion at Mandalay Bay and forthcoming expansion of Aria," Gabelli analyst Adam Trivison wrote in the report, referring to two of the company's casino resort properties. The company's larger operations dedicated to bringing in group businesses have helped on that front, he said in an interview with IBD.
And in March, NFL owners OK'd the Oakland Raiders' plans to move to Las Vegas, where the team is set to begin playing in a new $1.9 billion stadium in 2020. Bringing a big sports franchise could shore up business across the city on slower weekends and during the holidays, Trivison said.
But there's a particular benefit for MGM: Plans, as of now, would put the stadium along I-15 — right across from MGM's Mandalay Bay Resort.
"Everyone wins," Trivison wrote in another recent research note, "especially MGM."
Highways And Towels
A new highway linking Las Vegas and Phoenix, Interstate 11, could also decongest travel between the two expanding cities once complete. The two metro areas had been the largest adjacent U.S. cities not connected by freeway, and this move could bring more gamblers to Vegas from the southeast. Construction is still in the early phases.
Meanwhile, Trivison estimates, there won't be any significant new hotel-room additions to the Las Vegas Strip for potentially three years, keeping new competition at bay for MGM and giving them more control over prices.
IBD'S TAKE: In late April, MGM broke out of a flat base that lasted nearly five months and is now hovering in a buy range in the low 30s. MGM has a highest-possible IBD Composite Rating of 99 and is the top-ranked stock in the Leisure-Gaming Equipment sector.
The shoring up of fundamentals comes as the industry, once populated by an array of smaller casino operators, has consolidated over the years. Along the way, it has also taken a more sophisticated, analytics-oriented approach to measuring business trends.
MGM Resorts International — the product of a sandwiching-together of the legacy MGM business, Mirage and Mandalay — is no exception. The company has gotten better at watching costs and invested in technology that can gauge customer demand and labor needs.
MGM's profit growth plan has helped. Under that plan, begun in mid-2015, the company carried out scores of initiatives, including tying its businesses together. It even made sure more of its properties all carried the same kinds of towels.
"There was a view that the company could be improved," Katz said. "They were leaving money on the table."
Courting Millennials
Even as MGM works to keep Wall Street happy, the industry faces a bigger, generational problem: how to keep the younger people coming into Vegas happy as well amid concerns they're not yet interested in gambling.
D'Arrigo says Baby Boomers are still MGM's "bread and butter" customer. While he said millennials weren't shy about buying bottle service and dropping thousands at a venue in Vegas, they were more interested in the social component of gaming.
"We've seen that more with the millennials than we do them sitting down at a three-reel slot machine at video poker," he said.
The gaming industry, including MGM, has also begun tinkering with technology that allows people to gamble away from the casino floor, perhaps by the pool but not off-premise completely.
Seeking to tap the growing popularity of e-sports, MGM's Mandalay Bay Events Center last year also hosted a "League of Legends" tournament. It also plans to host Evo 2017 World Finals, the fighting-game tournament, in July. And the company plans to turn a nightclub at its Luxor property into an e-Sports arena, potentially next year.
The industry also is experimenting with so-called "skill-based" games, first approved in the U.S. last year. Those games function like the shooters or pinball games found on consoles or at arcades, except a player places a bet and gets paid according to how well they do.
Trivison says it could take time before the industry develops games that effectively juggle the length of a turn at a game, payout and profitability. And he said it would be difficult to create something as profitable as the slot-heavy regional casinos of decades past.
"What business can you think of where people will literally come into your place and drop money into a machine and walk out?" Trivison said.
Branching Out
MGM also has widened its exposure to parts of the U.S. outside of Vegas — with locations like MGM Grand Detroit and National Harbor. The company also plans to open a location in Springfield, Mass., in the second half of next year.
Sales from those locations are unlikely to match those in Vegas, and newer, smaller markets can be harder for a casino operator to predict, Telsey's Katz says. Even as Detroit and Springfield pick up the pieces after years of struggle, Katz says locations in smaller cities can turn customers on to MGM's bigger resorts in Las Vegas.
That may be helpful, since China is seeking to to curb the flow of cash from its borders. Ultimately, Macau still wields considerable influence over shares of MGM and rivals there — Wynn, LVS and Melco Resorts & Entertainment (MLCO).
In recent years, China has accused junket operators, the middlemen who loan VIPs money to bypass cash the nation's cash limits, of money laundering. Macau authorities have also set limits on daily ATM cash withdrawals for China UnionPay cardholders — a big source of spending in the gaming hub — and recently said it would begin using facial recognition technology to verify the identities of those cardholders.
After concerns VIPs would be scared away, business has picked up. But regulations in China remain hard to predict.
"You can never relax about Macau," Katz said.
MGM shares were up nearly 1% to 31.25 on Friday.
