Is MGM Resorts International (MGM) The Most Undervalued Hotel Stock To Invest In Now?
Friday, Nov 15, 2024 6:17 am ET
4min read MGM Resorts International (MGM) has been making waves in the hotel and casino industry, with a diversified portfolio of resorts and casinos that have proven resilient and contributed to its growth potential. As of 2024, MGM's revenue reached $16.12 billion, a 23.21% increase from the previous year, driven by strong performances across its segments. However, the question remains: is MGM the most undervalued hotel stock to invest in now?
To determine MGM's undervaluation, we'll compare its price-to-earnings (P/E) ratio and enterprise value-to-EBITDA (EV/EBITDA) ratio to its competitors. As of Q3 2024, MGM's P/E ratio was 18.7, while its EV/EBITDA ratio was 10.4. In comparison, Wynn Resorts (WYNN) had a P/E of 22.5 and EV/EBITDA of 12.3, and Las Vegas Sands (LVS) had a P/E of 16.2 and EV/EBITDA of 8.8. MGM's lower ratios suggest it may be undervalued relative to its peers.
MGM's international expansion plans, particularly in Japan and Brazil, play a significant role in its long-term valuation. In Q3 2024, MGM announced a venture with Grupo Globo to pursue a sports betting and iGaming license in Brazil, aiming to launch the BetMGM brand. This strategic move aligns with the growing digital gaming market in Brazil, which is expected to reach $1.8 billion by 2025. Additionally, MGM's pipeline of development in Japan, including the $9.5 billion integrated resort in Osaka, positions the company to capitalize on the burgeoning Asian gaming market.
MGM's share repurchase program has also impacted its stock price and overall valuation. Since 2021, MGM has reduced its outstanding shares by 40% through share repurchases, totaling approximately $1.3 billion year-to-date in 2024. This reduction in share count increases earnings per share (EPS) and can lead to a higher stock price. In Q3 2024, MGM's diluted EPS increased to $0.61, up from $0.46 in the prior year quarter, partly driven by share repurchases.
MGM's strong balance sheet, characterized by low net debt and significant liquidity, positions it exceptionally well for future growth and strategic investments. As of Q3 2024, MGM's net cash flow provided by operating, investing, and financing activities was $1.7 billion, $879 million, and $774 million, respectively, with Free Cash Flow of $944 million. This robust financial health allows MGM to pursue strategic initiatives like expanding its digital presence through BetMGM, repurchasing shares, and exploring international growth opportunities.
In conclusion, MGM Resorts International's diversified portfolio, international expansion plans, share repurchase program, and strong financial health position it as a compelling investment opportunity in the hotel sector. With a P/E ratio and EV/EBITDA ratio lower than its competitors, MGM may be the most undervalued hotel stock to invest in now. However, investors should continue to monitor market trends and evaluate MGM's performance against its peers to make informed investment decisions.
To determine MGM's undervaluation, we'll compare its price-to-earnings (P/E) ratio and enterprise value-to-EBITDA (EV/EBITDA) ratio to its competitors. As of Q3 2024, MGM's P/E ratio was 18.7, while its EV/EBITDA ratio was 10.4. In comparison, Wynn Resorts (WYNN) had a P/E of 22.5 and EV/EBITDA of 12.3, and Las Vegas Sands (LVS) had a P/E of 16.2 and EV/EBITDA of 8.8. MGM's lower ratios suggest it may be undervalued relative to its peers.
MGM's international expansion plans, particularly in Japan and Brazil, play a significant role in its long-term valuation. In Q3 2024, MGM announced a venture with Grupo Globo to pursue a sports betting and iGaming license in Brazil, aiming to launch the BetMGM brand. This strategic move aligns with the growing digital gaming market in Brazil, which is expected to reach $1.8 billion by 2025. Additionally, MGM's pipeline of development in Japan, including the $9.5 billion integrated resort in Osaka, positions the company to capitalize on the burgeoning Asian gaming market.
MGM Total Revenue YoY, Total Revenue
MGM's share repurchase program has also impacted its stock price and overall valuation. Since 2021, MGM has reduced its outstanding shares by 40% through share repurchases, totaling approximately $1.3 billion year-to-date in 2024. This reduction in share count increases earnings per share (EPS) and can lead to a higher stock price. In Q3 2024, MGM's diluted EPS increased to $0.61, up from $0.46 in the prior year quarter, partly driven by share repurchases.
MGM's strong balance sheet, characterized by low net debt and significant liquidity, positions it exceptionally well for future growth and strategic investments. As of Q3 2024, MGM's net cash flow provided by operating, investing, and financing activities was $1.7 billion, $879 million, and $774 million, respectively, with Free Cash Flow of $944 million. This robust financial health allows MGM to pursue strategic initiatives like expanding its digital presence through BetMGM, repurchasing shares, and exploring international growth opportunities.
In conclusion, MGM Resorts International's diversified portfolio, international expansion plans, share repurchase program, and strong financial health position it as a compelling investment opportunity in the hotel sector. With a P/E ratio and EV/EBITDA ratio lower than its competitors, MGM may be the most undervalued hotel stock to invest in now. However, investors should continue to monitor market trends and evaluate MGM's performance against its peers to make informed investment decisions.
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