MGM Is a Much Better Company Today, but Does It Outperform Peers?

With refinanced debt and tremendous industry tailwinds, MGM Resorts is looking good, and far better than it did one year ago. Does that mean it's better than Wynn or Las Vegas Sands?

Feb 23, 2014 at 8:30AM

The casino industry had a whirlwind 2013, and 2014 may be just as good if not better. One of the sector's biggest winners last year was MGM Resorts (NYSE:MGM)-- which gained nearly 100% in stock price throughout 2013.

As is widely known, the Chinese island of Macau is the world's gaming mecca and is driving results higher and higher for all of the major players. Back home, MGM is the biggest gaming company on the Las Vegas Strip, and the numbers are looking good for this year, with room-booking guidance higher than anticipated. Compared to a year ago, when the company was still struggling to get out from under its crushing debt load, MGM is once again a profitable business with attractive growth prospects. Should investors choose it over the other gaming giants?

Back in black
After posting a $2.50-per-share loss in 2012's fourth quarter, MGM Resorts is nearly back in the land of profitability, losing $0.01 per share in the recently ended quarter. Excluding some one-time items, the company actually hit $0.11 inper-share profit.

Starting on the domestic front, the company is seeing stable occupancy levels in Vegas -- about 85% for the fourth quarter of 2012 and 2013. However, average room rates have risen a couple of dollars to $133, and RevPAR (revenue per available room) ticked up from $112 to $114.

MGM China, which is majority-owned by MGM Resorts, saw sales climb 27% --roughly in line with Macau's overall numbers. VIP gaming led the way with 32% growth. The company's Cotai property (Cotai is Macau's equivalent of the Las Vegas Strip) is readying to open in 2016. MGM currently has one property operating in the area.

How it stacks up
MGM is a much more attractive company today than it was a couple of years ago. For one thing, MGM had the ultimate bad timing of embarking on the extremely expensive CityCenter project in Las Vegas about two seconds before the financial crisis hit.

Much of that debt has finally been refinanced and or paid down. The company recently issued a low rate debt offering that takes care of its entire 2014 maturity schedule. It still has $13.4 billion in debt on the books with less than $2 billion in cash.

MGM's biggest competitors are Wynn Resorts (NASDAQ:WYNN) and Las Vegas Sands (NYSE:LVS). Now, MGM enjoyed a great 2013 because of the industry tailwinds and its success in emerging from the financial ditch. Wynn and Las Vegas Sands benefited largely from the industry conditions at large. Going forward, though, MGM may not be as appealing considering its still sizable debt profile. Wynn and Las Vegas Sands have similar growth prospects and both have projects in development in Macau. Wynn's is a $4 billion-plus resort and is aimed at being the most luxurious property on the island. Las Vegas Sands' is tuned slightly more to the masses.

Though all three companies have billions in debt, neither Wynn nor Las Vegas Sands have the debt ratio that MGM does. With a relatively even playing field going forward, the two former businesses are more appealing than the latter.

Casinos will remain one of the high-growth sectors for this year and beyond. Investors are wise to take notice, but MGM may not be the best play today.

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