On Thursday, Citi adjusted its outlook on MGM Resorts International (NYSE:MGM), reducing the price target to $55 from the previous $57 while sustaining a Buy rating on the stock.
The adjustment reflects recent operational trends and anticipated shifts in market conditions. The analyst noted that while management at MGM Resorts continues to expect strong business volumes in Las Vegas, previous positive events such as the Formula 1 race and the Super Bowl are now seen as potential challenges in the near term.
The revised price target from $57 to $55 takes into account the latest operational trends that MGM Resorts is experiencing.
Despite the reduction, Citi maintains a positive outlook on the company's stock, citing MGM Resorts' ability to meet its mid-teens Free Cash Flow Compound Annual Growth Rate (FCF CAGR) target as a key reason for the continued Buy rating. The analyst believes that this growth objective is within reach for the resort and casino operators.
Citi's analysis suggests that upcoming events and developments in Las Vegas could lead to an increase in visitors, which would benefit MGM Resorts. The potential relocation of the Oakland Athletics (A's), the hosting of the NCAA Men's Final Four, and the possibility of a new NBA team are highlighted as significant draws that could boost tourism and, by extension, MGM's business given its prominent presence on the Las Vegas Strip.
As of the latest reporting, MGM Resorts' stock is trading at a multiple of 9.1 times its forecasted fiscal year 2025 Enterprise Value to Earnings Before Interest, Taxes, Depreciation, and Amortization (EV/EBITDA).
This valuation is noted to be more than half a standard deviation below the historical average, suggesting a lower-than-usual price relative to the company's earnings potential. The analysis by Citi indicates a belief in the stock's upside potential despite the adjusted price target.
In other recent news, MGM Resorts International reported a downturn in its third-quarter earnings and revenue, falling short of analyst expectations.
The company's Las Vegas casino operations witnessed a 13% decline in revenue to $476 million, and table game winnings also decreased by 19% to $328 million compared to the same period last year. The company's total revenue for the quarter was $4.18 billion, missing the average analyst estimate of $4.21 billion. The adjusted earnings per share were reported at 54 cents, below the anticipated 61 cents.
Despite these figures, MGM Resorts reported record consolidated net revenues for the quarter, driven by strong performance at its MGM China (OTC:MCHVY) operations, which enjoyed a 14% surge in net revenues to $929 million. Sequential improvement was also seen in the company's Las Vegas Strip properties.
Additionally, the company continued its share repurchase program, buying back over $300 million worth of stock during the quarter.
Looking forward, management expressed optimism about long-term growth prospects, citing opportunities in Japan, New York, and the digital gaming space. These recent developments offer insights into the company's performance and plans.
InvestingPro Insights
To complement Citi's analysis, recent data from InvestingPro provides additional context on MGM Resorts International's financial position. The company's market capitalization stands at $12.58 billion, with a P/E ratio of 15.61, indicating a relatively moderate valuation compared to earnings. MGM's revenue for the last twelve months as of Q2 2024 reached $17.01 billion, with a notable revenue growth of 15.12% over the same period.
InvestingPro Tips highlight that MGM's management has been aggressively buying back shares, which aligns with the company's focus on shareholder value mentioned in the article. Additionally, MGM boasts a high shareholder yield, potentially making it an attractive option for investors despite not paying a dividend. These factors support Citi's maintained Buy rating, even with the slightly lowered price target.
It's worth noting that InvestingPro offers 8 additional tips for MGM Resorts International, providing investors with a more comprehensive analysis of the company's financial health and market position.
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