Las Vegas continues to improve for stock pick MGM, but second Macao casino remains the prize

11/01/2013 7:22 pm EST


Jim Jubak

Founder and Editor,

Yesterday, October 31, MGM Resorts International (MGM) reported a loss for the September quarter of 7 cents a share. That compares with a loss of 37 cents a share in the September quarter of 2012. Excluding one-time items the company moved into the black with earnings of 2 cents a share. That compares with a 3-cent a share loss in the September quarter of 2012. Revenue climbed 9% year over year. Cash flow rose 25% year over year. (MGM Resorts International is a member of my Jubak’s Picks portfolio )

The company’s Las Vegas hotel and casino business continued its recovery. RevPAR (revenue per available room) rose 3% in the quarter. That was in line with guidance. In its conference call the company forecast flat RevPAR in the fourth quarter but then a pickup in the first quarter of 2014 that would continue throughout the year. The improvement is a result of a growth in convention bookings. (Convention goers pay higher room rates than leisure travelers.) The company normally has 80% of its convention target rooms booked by Halloween. This year convention room booking was at 88% of target by Halloween.

The improvement in the company’s Las Vegas business, where revenue climbed 6% year over year, was the payoff on room remodeling at the MGM Grand and the Bellagio, completed last year. Investments in nightclub, restaurant, and entertainment offerings at Mandalay Bay pushed EBITDA (earnings before interest, taxes, depreciation, and amortization) up 20% for the quarter year over year

And MGM continued with the restructuring of the debt on its balance sheet that has added to cash flow during the company’s recovery. In this case it was a new $1.78 billion credit facility for the company’s City Center project that reduced cash interest expense by about $80 million a year.

Growth was actually even better in MGM’s Macao operation although it did fall short of Wall Street expectations. Revenue from the Macao casino and hotel operation climbed 22% year over year and EBITDA rose 25% to $191 million. That missed Wall Street estimates for EBITDA by about 2%.

MGM’s growth in Macao has been hampered by its lack of a second casino and hotel on the newly hot Cotai Strip, where its new development is projected to open in 2016. The company is on schedule to complete piling and site work by the end of 2013.

MGM’s shares have recently climbed above my $18 target price to close at $19.30 today. As of today, November 1, I’m raising my target to $24 a share by October 2014.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund, I liquidated all my individual stock holdings and put the money into the fund. The fund may or may not now own positions in any stock mentioned in this post. The fund did own shares of MGM Resorts International as of the end of June. For a full list of the stocks in the fund as of the end of June see the fund’s portfolio at
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