This week’s Stock of the Week is a well-run casino company that’s growing, at home and abroad.
Casinos and More
MGM Resorts International (MGM) has a worldwide combination of casino, hotel and entertainment properties that is generating strong revenue growth and that management is developing skillfully.
MGM owns and operates 16 casinos and many noncasino properties. It owns 76% of MGM Growth Properties, which owns many casinos throughout the US, and is publicly traded as MGP…56% of MGM China, a developer, owner and operator of casino and hotel resorts in China…and 50% of Citi Center, a mixed-use urban complex in Las Vegas. It recently opened National Harbor, hotel and casino resort near Washington, DC, and is building a second casino in Macau, where it already owns one.
Unlike some other major US-based casino operators, MGM generates only about 20% of revenue from Macau, which is a highly regulated area where any growth is at the discretion of the Chinese government. MGM gets about 55% of revenue from its properties in Las Vegas, where it is the largest hotel and gaming owner on the Las Vegas Strip.
Revenue will likely grow from $9.45 billion last year to an estimated $10.96 billion this year and $12.44 billion in 2018. Earnings are growing quickly, too. But because of some onetime events involving permits and financing of various properties, the company has been trading at only about 7.5 times EBITDA (earnings before interest, taxes, depreciation and amortization)—offering investors a buying opportunity. After significantly reducing debt and improving the balance sheet, earlier this year the company introduced a $0.44/share/year dividend, recently yielding 1.6%. This shows management’s commitment to returning cash to shareholders.
Fiscal year.: Dec. Earnings per share: 2018 est./$1.80…2017 est./$1.20…2016/$0.95.
This Week’s Expert
Daniel M. Miller is portfolio manager of the $176 million Gabelli Focus Five Fund (GWSAX), Rye, New York. Gabelli.com