MGM: Good News in 2Q

Just five years ago, it looked like ill-timed investments by MGM Resorts International would hobble the company indefinitely, or even cause its demise. Now the Lion is back, and roaring. Second quarter results show that even CityCenter (l.) is turning around.

Analyst: MGM “outperforming” its market

In its second-quarter earnings report, MGM Resorts International showed profits of $105.5 million on revenue of $2.6 billion. The numbers signal a definitive turnaround for the company, which was mired in debt as recently as 2009, with stock prices in the single digits, according to the Las Vegas Review-Journal.

“MGM remains the most compelling way for investors to play a Vegas recovery paired with growth in Macau,” said Credit Suisse gaming analyst Joel Simkins in a research note. “With Las Vegas back in vogue, investors should turn to MGM as the best way to play this theme.”

“Las Vegas trends clearly remain strong, and we remain positive on the potential upside from MGM China’s Cotai project and its strong dividend profile,” added Wells Fargo Securities gaming analyst Cameron McKnight.

And Steven Wieczynski of Stifel Nicolaus Capital Markets said MGM’s current stock price, which has been hovering in the mid-$20s, has “widely outperformed the broader market” over the past 12 months. The company’s long-term debt, which was at $13.4 billion at the end of 2013, was down to $12.6 billion as of June 30.

“We think this quarter is a really good example of the power of being a leading operator here in Las Vegas,” MGM Chairman Jim Murren told analysts. “Our key markets are continuing to grow, and we continue to invest and focus where we see opportunity.”

Fortunately for the company, its Macau casino paid off and kept the company afloat while Vegas recovered. Now Macau is dipping slightly, and Vegas is surging. MGM Resorts’ Strip revenue increased 7.7 percent for the quarter. And CityCenter, which MGM manages and owns in partnership with Dubai World, saw a revenue increase of 9 percent. Macau revenue fell less than 1 percent.

MGM continues to enhance its footprint in Las Vegas with the development of a 33-acre open-air concert venue; a 13,000-square-foot Hershey’s Chocolate World at New York New York; and more.

During the second-quarter conference call, Goldman Sachs analyst Stephen Kent asked if MGM was still considering selling Crystals, the retail and entertainment component of CityCenter, or possibly buy out Dubai World, which owns half of CityCenter.

“As it relates to buying out our partners, I think we both like owning half of it,” Murren said. “I’d like to own 100 percent of it, but you have to have somebody that wants to sell when you want to buy. And our partners don’t want to sell.” He noted that Aria is growing in profitability, and “Mandarin Oriental and Vdara are making money.”

More expansion is in the works. In 2016, MGM will open the $2.9 billion MGM Cotai in Macau, the $1.2 billion MGM National Harbor in Maryland. “We think CityCenter, MGM Cotai and MGM National Harbor are overlooked and should create value for the company,” Buckingham Research Group gaming analyst Brian McGill said. “The balance sheet has also improved and leverage should decline going forward.”

Amid the positive developments, MGM is also seeking to regain its New Jersey gaming license. A settlement was made in July between MGM Resorts, Los Angeles-based Tracinda Corp., and the New Jersey Division of Gaming Enforcement, ending a 10-year-old case involving Los Angeles attorney Terry Christensen, a former MGM board member and confidant of Kirk Kerkorian, MGM Resorts’ largest shareholder. Christensen continued to advise Kerkorian even after he was convicted of criminal wiretapping and served a three-year prison term. MGM also chose to forfeit its 50 percent stake in the Borgata when told by New Jersey regulators that it would have to choose between AC and its relationship with its Macau business partner, Pansy Ho. Ho’s family is alleged to have connections to Chinese crime triads.

MGM Resorts Senior Vice President Alan Feldman called the settlement “part of the process of cleaning up some old items.”