The major casino operators out of Las Vegas have only been able to produce lackluster performances lately. Las Vegas Sands, Wynn Resorts and MGM are not reporting impressive results or growth, but are managing to hang on. As a result, investors aren’t too happy, but analysts believe that a brighter future is coming and that MGM, in particular, is poised to see substantial improvements.
Shares of MGM have increased only 5.3% year-to-date, slightly more than half of what Sands has seen over the same period and only about a third of the results at Wynn Resorts. This is a resounding indication of investors’ sentiment toward MGM, but the company has $15 billion in debt. If this debt is significantly reduced, which MGM is currently working toward, its value will exponentially increase.
Barron’s believes that MGM is looking at a brighter future. Looking at free cash flow and EBITDA (earnings before interest, taxes, depreciation and amortization), MGM is valued appropriately relative to its competitors and has no major projects coming up in the near future. It recently rejected a possible acquisition of Wynn’s Encore Boston Harbor project in Massachusetts and the company is apparently now more interested in boosting its free cash flow than it is making acquisitions.
In an effort to reduce expenses, MGM is hoping it can reduce its workforce by at least 1,000 by the beginning of July, with additional layoffs possible later on. Those efforts, combined with others meant to reduce expenses, are expected to generate about $2.50 a share in free cash flow this year and $3.50 a share next year, asserts Barron’s.
Morningstar analysts are also favorable to growth at MGM, recently stating, “We think MGM Resorts is positioned to maintain its leading presence in the lower-growth lower-barrier Las Vegas region (49 percent of estimated 2019 EBITDA) while participating in the attractive long-term growth opportunity of Macau (19 percent of EBITDA). MGM Resorts has expanded its room share in Macau to 8 percent from 3 percent with its Cotai property, which opened in February.”
Union Gaming’s John DeCree is bullish, as well. He stated earlier this month that the stock deserves a “Buy” rating and that the outlook for the company “for 2020 in Las Vegas remains favorable.”