Better Buy: MGM Resorts or Caesars Entertainment Stock?

Thanks to a growing experience-driven economy, as well as the proliferation of gambling worldwide, the global casino market has produced some record-breaking revenue numbers lately.

And that's likely to continue. The recent reopening of the Macao region in China has kicked off a rapid recovery, and Las Vegas resorts delivered all-time high revenue last quarter. 

Let's compare two major gaming operators to determine which casino stock makes a better buy in today's market.

The case for MGM Resorts

Posting another record quarter for its resorts on the Las Vegas Strip, MGM Resorts International (MGM 0.99%) resumed operations in Macao during the current quarter. Last year's Q4 results produced the fifth straight record for adjusted property earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR) for MGM's resorts on the Strip, with persistent demand enjoyed across all segments.

During the fourth-quarter earnings call last month, CFO Jonathan Halkyard expressed how MGM's impressive Vegas results were "driven by our exceptional entertainment offerings and other customer demand drivers." Aside from entertainment draws, MGM attracted guests with new gaming floors, room renovations, and marketing promotions. 

MGM brought in fourth-quarter consolidated net revenue of $3.6 billion, an 18% increase year over year. Q4 net income attributable to MGM Resorts jumped an impressive 117% year over year, reaching $284 million. 

Full-year 2022 consolidated revenue improved 35% compared to 2021, but net income attributable to MGM only improved 17%. So if Q4 is any indication, profitability is accelerating for MGM Resorts International.

Looking ahead, MGM will focus on maintaining its momentum in Las Vegas while bringing operations up to speed in recently reopened Macao. Since COVID-19 restrictions were lifted in January, MGM China has observed a surge in visitation. According to MGM CEO Bill Hornbuckle, MGM's properties in the Macao region form "the highest-earning businesses" within its portfolio.

The case for Caesars Entertainment 

Enjoying demand across all verticals last quarter, Caesars Entertainment (CZR 1.82%) broke fourth-quarter earnings records in both Las Vegas and regional markets. Overall, consolidated revenue landed at $2.8 billion, a nearly 9% increase from Q4 2021.

The largest revenue gain came in Caesars' digital segment, which saw 104% year-over-year improvement. According to President Anthony Carano, results for Caesars Digital improved throughout 2022, leading to its best performance in Q4. 

Digital volume improved 7%, hold gained 100 basis points, and marketing expenses declined 43% year over year. Although Caesars Digital posted its best revenue result ever last quarter, it ultimately took an adjusted EBITDA loss. 

However, Q4 also marked Caesars' smallest digital loss since rebranding to Caesars Sportsbook in 2021. In fact, CEO Tom Reeg anticipates both segments of Caesars' digital business, sports betting and online gambling, to end this year "EBITDA positive." By 2025, he expects earnings from Caesars Digital to hit $500 million or more.

In another positive signal, for the first time since the onset of the pandemic, occupancy at Caesars' resorts reached 95.5% last quarter. Full-year 2022 consolidated net revenue landed at $10.8 billion, up 12.5% from 2021. However, Caesars Entertainment finished the year with a net loss of $899 million. 

It's been a challenging operating environment for Caesars, where not only inflation and economic insecurity have impacted visitation, but also weather events. Harsh winter conditions last December prevented an estimated $20 million in earnings potential. Undeterred, Caesars' management team is encouraged by forward-looking occupancy, which currently surpasses 2019 levels with higher prices.

Which casino stock is a better buy?

The first thing to consider is profitability. MGM Resorts ended 2022 with profits, but Caesars took a net loss for the year. Right off the bat, MGM presents a more appealing investment.

Nevertheless, since Caesars Entertainment operated at a loss last year, I've compared the two stocks using their year-over-year revenue growth rates and return on capital employed (ROCE).

Data source: WallStreetZen. YOY = year-over-year. 

Based on much better year-over-year revenue growth and a higher ROCE, MGM Resorts International is today's clear winner. If MGM can keep up the good work in Vegas while getting back up to speed in Macao, this casino stock should reward long-term investors.