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MGM Resorts Slowly Improving Its Fortunes
MGM Resorts (NYSE:MGM) reported second quarter financial results on Monday that demonstrated its casinos are slowly recovering from the credit crisis. A more aggressive move into Asia is also helping its forward prospects, but they may remain limited given the firm's heavy debt load.
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Second Quarter Recap
Reported revenues jumped 17% to $1.8 billion and included $193 million from consolidating the results of MGM China related to the June 3 initial public offering of MGM China and MGM Resort's purchase of an additional 1% to give it a controlling stake at 51%. MGM Resorts also has a variety of casinos that are wholly-owned, as well as a number of properties where it owns a significant stake.
The wholly-owned casinos consist primarily of those in Las Vegas and include Bellagio, Mandalay Bay and MGM Grand Las Vegas. Revenues from this group increased a modest 1% as gambling activity and room occupancy rates continue to improve domestically. At the Vegas resorts, hotel occupancy rates improved one percentage point to 94% while revenue per available room (REVPAR), a standard metric of hotel room trends, advanced 10% to $118. MGM China revenue came in at $668 million. Other sizable investments include CityCenter in Vegas and the Borgata in New Jersey. The company plans to sell its 50% stake in Borgata and could sell it to Boyd Gaming (NYSE:BYD), which owns the other 50% stake. Penn National Gaming (Nasdaq:PENN) is another potential buyer and has been active in the domestic market. Last year, it bought all of the outstanding debt from M Resort, a financially troubled casino in Las Vegas.
Reported net income jumped to $3.45 billion but included a gain of $3.5 billion related to consolidating MGM China into the corporate fold. This worked out to earnings of $6.22 per share, but stripping out this gain resulted in an operating loss of about 5 cents per share.
Outlook
Analysts currently project full year sales growth of nearly 8% and total sales of $6.9 billion. They collectively project an earnings loss of 57 cents per share.
MGM Resorts improved its fortunes with the addition of MGM China to its consolidated results, but still ended the quarter with a hefty debt load of almost $13 billion. However, free cash flow production has been a positive sign for the past two years and should remain so for 2011.
Bottom Line
At this point, archrivals Las Vegas Sands (NYSE:LVS) and Wynn Resorts (Nasdaq:WYNN) are more established in Asia. On the flipside, exposure to this fast-growing region is largely discounted in their stock prices. MGM Resorts has increased its exposure to China in particular, but will need to see a further recovery in Las Vegas and its other domestic casinos to boost profits and start paying down its excessive debt. (This very useful volatility index of the CBOE tells investors about the mood of the stock market. Check out Getting a VIX on Market Direction.)
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TUTORIAL: Mutual Fund Basics
Second Quarter Recap
Reported revenues jumped 17% to $1.8 billion and included $193 million from consolidating the results of MGM China related to the June 3 initial public offering of MGM China and MGM Resort's purchase of an additional 1% to give it a controlling stake at 51%. MGM Resorts also has a variety of casinos that are wholly-owned, as well as a number of properties where it owns a significant stake.
The wholly-owned casinos consist primarily of those in Las Vegas and include Bellagio, Mandalay Bay and MGM Grand Las Vegas. Revenues from this group increased a modest 1% as gambling activity and room occupancy rates continue to improve domestically. At the Vegas resorts, hotel occupancy rates improved one percentage point to 94% while revenue per available room (REVPAR), a standard metric of hotel room trends, advanced 10% to $118. MGM China revenue came in at $668 million. Other sizable investments include CityCenter in Vegas and the Borgata in New Jersey. The company plans to sell its 50% stake in Borgata and could sell it to Boyd Gaming (NYSE:BYD), which owns the other 50% stake. Penn National Gaming (Nasdaq:PENN) is another potential buyer and has been active in the domestic market. Last year, it bought all of the outstanding debt from M Resort, a financially troubled casino in Las Vegas.
Outlook
Analysts currently project full year sales growth of nearly 8% and total sales of $6.9 billion. They collectively project an earnings loss of 57 cents per share.
MGM Resorts improved its fortunes with the addition of MGM China to its consolidated results, but still ended the quarter with a hefty debt load of almost $13 billion. However, free cash flow production has been a positive sign for the past two years and should remain so for 2011.
Bottom Line
At this point, archrivals Las Vegas Sands (NYSE:LVS) and Wynn Resorts (Nasdaq:WYNN) are more established in Asia. On the flipside, exposure to this fast-growing region is largely discounted in their stock prices. MGM Resorts has increased its exposure to China in particular, but will need to see a further recovery in Las Vegas and its other domestic casinos to boost profits and start paying down its excessive debt. (This very useful volatility index of the CBOE tells investors about the mood of the stock market. Check out Getting a VIX on Market Direction.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Ryan C. Fuhrmann
Ryan C. Fuhrmann, CFA, has a background in portfolio management, overseeing assets for high-net-worth individuals and covering a broad array of industries from a generalist perspective. An active student of investing, he focuses on communicating his ideas as an investment writer and learning from the financial community. Ryan is also actively involved with the CFA Institute. Feel free to visit his website at www.rationalanalyst.com.
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