Analysts Say MGM Resorts Benefiting From Higher Las Vegas Strip Room Rates

JPMorgan and Credit Suisse analysts say MGM Resorts is benefitting in 2019 from higher room rates at several Las Vegas Strip properties.

MGM Resorts’ new Las Vegas Strip property is allowing the company to charge higher hotel rates. (Image: Vegas Changes)

The two financial services firms say in a note published Monday that room rates for the casino operator are between 13 percent and 20 percent higher in the first quarter of 2019 compared with the previous year.

There are several reasons for MGM’s rate increase. Las Vegas was still reeling in the first quarter of 2018 from the October 1, 2017, mass shooting that killed 58 people on the Strip. MGM was also in the process of transforming the Monte Carlo into Park MGM, and boutique NoMad Las Vegas.

With visitation back to pre-shooting levels, and MGM’s $550 million renovation complete, business is again good for Nevada’s largest employer. JPMorgan and Credit Suisse add that increased convention attendance at Mandalay Bay is also driving rates higher.

Earnings Call

MGM Resorts will hold its full-year 2018 earnings call with investors and analysts on February 13 at 5:00 pm ET. Zacks Investment Research expects earnings to come in between $1.08 and $1.12 per share.

MGM announced its “2020 Plan” last month. The company revealed will trim its total workforce by three percent over the next 12 months, or about 2,100 positions. The goal is to increase annual adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) by $300 million.

Analysts and investors have reacted positively to the plan.

MGM Resorts … is well poised to grow on high brand awareness,” a recent Zacks note opined. “The company’s superior business model, extensive non-gaming revenue opportunities, high-quality assets, and attractive property locations are the primary growth drivers.”

MGM CEO Jim Murren announced last month the formation of an ad-hoc committee that will review the company’s real estate holdings and real estate investment trust (REIT) structure.

Stock Performance

MGM Resorts – like nearly every gaming industry stock – lost considerable valuation in 2018. Investors saw shares plummet roughly 30 percent.

However, MGM has been on a winning streak in the new year, as shares have jumped from $24.26 on January 1, to $29 this week.

Competitor Earnings

2018 earnings reports for casino operators have been mixed so far.

Las Vegas Sands reported a $170 million net loss in the fourth quarter, primarily due to the “nonrecurring, non-cash income tax items due to the implementation of US tax reform.” The world’s richest casino empire said full-year revenue totaled more than $13.7 billion, with net income at $2.41 billion.

Wynn Resorts fell short of analyst expectations in the final three months of 2018, as adjusted net income per share was $1.06, far below the expected $1.36. Full-year revenue totaled $6.72 billion, and net income at $584.2 million.

Penn National perhaps delivered its shareholders the best news. The regional casino operator recorded record financials, primarily due to its $2.4 billion acquisition of Pinnacle Entertainment in 2018.

Penn National has emerged as one of the most dominant US casino operators. The company based in Pennsylvania now has 41 casino properties across 20 states, collectively housing 53,500 slot machines, 1,300 table games, and some 8,300 hotel rooms.

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