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MGM Resorts International MGM

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Elevated Country Risk Premium Stands to Lower Our Wynn and Las Vegas Sands Fair Value Estimates

Dan Wasiolek Senior Equity Analyst

Analyst Note

| Dan Wasiolek |

We plan to adjust our cost of equity higher for narrow-moat Wynn (Macao was 76% of 2019 EBITDA) and Las Vegas Sands (59%), to account for an increased risk premium tied to increasing Chinese government oversight in the Macao gaming industry. As a result, we expect to lower our Wynn and Las Vegas Sands $114 and $59 fair value estimates, respectively, by a high-single-digit percentage. While that would still leave shares of both operators in undervalued territory, investors should expect near-term volatility given the broader uncertainty surrounding the impact of China's social policies in the gaming and other sectors. We don’t plan to materially adjust MGM’s $39 fair value estimate, given just 22% of its prepandemic EBITDA came from Macao.

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Company Profile

Business Description

MGM Resorts is the largest resort operator on the Las Vegas Strip with 35,000 guest rooms and suites, representing about one fourth of all units in the market. The company's Vegas properties include MGM Grand, Mandalay Bay, Mirage, Luxor, New York-New York, and CityCenter. The Strip contributed approximately 49% of total EBITDAR in the prepandemic year of 2019. MGM also owns U.S. regional assets, which represented 29% of 2019 EBITDAR. We estimate MGM's U.S. sports and iGaming operations will be a mid-single-digit percentage of its total revenue by 2024. The company also operates the 56%-owned MGM Macau casinos with a new property that opened on the Cotai Strip in early 2018. Further, we estimate MGM will open a resort in Japan in 2027.

3600 Las Vegas Boulevard South
Las Vegas, NV, 89109
T +1 702 693-7120
Sector Consumer Cyclical
Industry Resorts & Casinos
Most Recent Earnings Jun 30, 2021
Fiscal Year End Dec 31, 2021
Stock Type Cyclical
Employees 42,000