Morningstar has issued a “BUY” call for MGM Resorts International, suggesting a fair value estimate of $49.00 per share. The report highlights significant potential for growth in both Las Vegas and Macao, alongside prospects in the Japanese gaming market.

Las Vegas Business Remains Strong

Las Vegas contributed 59% of MGM’s 2024 EBITDAR, with demand remaining at all-time highs. Revenue growth has been supported by increased sports and entertainment options.
Minimal supply additions in Las Vegas have maintained Strip occupancy rates at around 90%, which should continue to support revenue stability.
MGM has a competitive advantage through its loyalty program, which has over 40 million members, aiding customer acquisition and cross-selling across digital and physical platforms.

Macao’s Contribution to Revenue

Macao accounted for 21% of MGM’s 2024 EBITDAR, with revenue reaching 138% of 2019 levels.
Industry visitation is expected to remain strong over the next decade, supported by infrastructure improvements, such as the Pac On terminal expansion and light-rail transit.
MGM is well-positioned to benefit from long-term growth in Macao due to its gaming license, one of only six in the region.

Potential Growth in Japan

MGM is expected to open a Japanese integrated resort in 2030, which could account for 2% of total EBITDAR that year.
The resort is projected to generate attractive returns on invested capital in the low teens, driven by limited supply and high demand in the Japanese market.

Financial Performance and Valuation

Current market price: $38.30; fair value estimate: $49.00, indicating the stock is undervalued.
MGM's return on invested capital (ROIC) is forecasted to average 10% over the next five years, close to the company’s weighted average cost of capital (WACC).
The company’s EBITDA margins in Macao are expected to average around 27% between 2024-2032, supported by higher-margin mass gambling and non-gaming activities.

Risks and Uncertainties

MGM has a high uncertainty rating due to its reliance on Las Vegas and Macao for revenue, which are subject to regulatory changes and economic cycles.
In Macao, growth could be impacted by government decisions regarding gaming table allocations, labor, and travel visas for Chinese visitors.
The company also faces environmental, social, and governance (ESG) risks, such as gambling addiction and data security issues.

Capital Allocation and Debt Management

MGM has improved its balance sheet, with debt/EBITDA expected to average 2.4 times during 2025-2029, down from a 10x average in 2014-2016.
The company’s strategy includes repurchasing shares, focusing on sports betting, i-gaming, and the Japanese gaming market for growth.

Competitors Comparison

Morningstar recommends investors to consider buying MGM’s stock based on its growth potential in Las Vegas, Macao, and future opportunities in Japan.
However, investors should conduct their own due diligence and consider market risks before making any investment decisions.