Operating some of Las Vegas's most iconic casinos, like the MGM Grand, Bellagio, and Mandalay Bay, MGM Resorts International (MGM -2.58%) is a household name for gamblers everywhere. It also hasn't been a shabby bet for investors who have enjoyed a return of almost 40% over the last five years despite macroeconomic headwinds like the coronavirus pandemic.
The next half-decade could be much more promising for MGM as it consolidates its business in China while pivoting to new long-term growth drivers like New York State and Osaka, Japan.
What the present can tell us about the future
Like many in-person entertainment companies, MGM Resorts was hit incredibly hard by the coronavirus pandemic -- a challenge it has finally put on the back burner.
In the latest quarter, net revenue jumped by a whopping 21% year over year to $3.9 billion almost exclusively because of a recovery in Macau as authorities in the gaming hub lifted remaining health restrictions at the start of the year. Sales in the region soared by a whopping 418% to $741 million, 5% higher than the pre-pandemic levels set in the second quarter of 2019.
While some investors may be worried about a September cyberattack in which hackers breached MGM's computer systems, the company's management says it has restored "virtually all" guest-facing systems and doesn't expect a substantial impact on full-year results.
And as a whole, MGM seems to have finally stabilized its business. Going forward, management will likely focus on returning value to shareholders via share buybacks (the company repurchased $626 million worth of stock in the second quarter) and pivoting to new long-term growth drivers.
Pivoting to new growth drivers
Over the next five years, MGM Resorts' most exciting new growth driver looks to be a new integrated resort it is building in Osaka, Japan. Last month, the company and its joint venture partner Orix Corp won approval to develop the $10 billion property. And MGM expects to be finished by the first half of 2030. According to analysts at Morningstar, the project could generate over $4 billion in annual revenue, which is substantial compared to the $13 billion MGM generated in all of 2022.
But MGM's Casino ambitions don't end in Asia. In September, the state of New York authorized up to three casino licenses for New York City, Long Island, and Westchester County -- a metropolitan area with roughly 23 million residents that could be one of America's last major untapped gambling markets. MGM already operates a small regional property in Yonkers, just North of the Big Apple, and a full license will allow it to expand into live table games like blackjack and poker.
Image source: Getty Images.
MGM's CEO, Bill Hornbuckle, hopes to receive a license in the first half of 2024. However, the company didn't provide color on the possible revenue implications of this development in its second-quarter earnings call.
How will the stock perform?
MGM's stock is in a good position for long-term investors because it boasts a plethora of high-impact growth drivers that may not be fully priced into its current valuation. Investors can also look forward to the cumulative effects of its buybacks, which can increase shareholders' claim on future earnings by reducing the number of shares outstanding.
Finally, with a price-to-earnings (P/E) multiple of 25, MGM's valuation is in line with the S&P 500's average, which looks reasonable.
