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MGM Resorts: Huge upside potential despite gloomy 4Q14 results

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Part 7
MGM Resorts: Huge upside potential despite gloomy 4Q14 results PART 7 OF 9

MGM’s share price has huge upside potential

Recent performance

In this part of the series, we’ll discuss MGM Resorts’ (MGM) share price movement. MGM’s share price hasn’t been impacted much by the anti-corruption campaign in China. However, the campaign took a toll in 3Q14.

Its business has ~33% exposure in Macau—the only place in China where gambling is legal. Macau offers huge growth potential due to the growth in the Chinese middle class population—even though it experienced a setback from the VIP punters.

MGM’s share price has huge upside potential

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Casino companies—like MGM, Las Vegas Sands (LVS), Wynn Resorts (WYNN), and Melco Crown Entertainment (MPEL)—realized the growth potential that Macau could offer in the near future. They have been developing their casinos in the Cotai region in Macau.

These casino companies’ share prices are expected to gain momentum once the new resorts open to the public. A good way to get exposure to these companies is to invest in ETFs like the VanEck Vectors Gaming ETF (BJK). BJK has ~5% exposure to MGM.

The above chart shows that MGM outperformed other companies in the industry over the last year. However, it underperformed the SPDR S&P 500 ETF (SPY) during the same period. It should be noted that MGM’s wholly owned domestic operations performed strongly in 4Q14—compared to its operations in Macau. Revenue and adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) were up 5% year-over-year, or YoY, at its domestic resorts.

Key takeaways from 4Q14 earnings call

James J. Murren, MGM’s chairman and CEO, said, “MGM Cotai construction is progressing really well. MGM Cotai, as you know, will be almost two times the size of our existing property. And that allows us to develop far more amenities for our guests.”

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