"Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks."- Warren Buffett.
At the moment, the quote fits perfectly for MGM Resorts International MGM as the company's near-term future looks bleak. In fact, investors need to exercise extreme caution when it comes to the stock as it is unlikely to show any major improvement moving ahead. In the past six months, shares of MGM Resorts have plunged 17.4%, wider than the industry 's 2% decline.
Let's delve deeper to find out the reasons behind the company's dismal performance.
MGM Resorts Vs Industry Scorecard
Disappointing Macau Revenues a Major Concern
Macau, which is the world's largest gambling hub, has disappointed investors with lower-than-expected revenues for the second successive month. Gambling revenues from Macau increased 12.5% to 22.49 billion patacas ($2.78 billion) in June. The metric not only lagged analyst expectations but also declined 12% from the figure registered in May. Even though gambling revenues were up for the 23nd straight months, it still remains below the highest level achieved in 2012.
Notably, MGM Resorts generates more than 20% of its revenues from Macau region, which declined sharply close on the heels of the news. Other stocks such as Melco Resorts & Entertainment Ltd. MLCO , Wynn Resorts, Limited WYNN and Las Vegas Sands Corp. LVS , which belong to the same industry and has highest exposure to Macau region, have also declined due to lower-than-expected Macau's gambling revenues.
Furthermore, MGM Resorts operates in the highly competitive markets of Las Vegas and Macau. Increased hotel openings and promotional activities have made these markets highly competitive. Thus, excess supply, especially in the Macau market, might reduce the company's market share.
MGM Resorts' heavy reliance on debt financing remains a concern. As of Mar 31, 2018, cash and cash equivalents were $1.5 billion compared with a much higher long-term debt of $12.7 billion. Therefore, any severe slowdown in macroeconomic and credit market conditions in the future may affect the company's ability to pay or refinance its debt.
In order to get a clear picture of what analysts are thinking about the company, let's look at MGM Resorts earnings estimate revisions. In the past 90 days, the Zacks Consensus Estimate for 2018 and 2019 has moved south by 5.7% and 12.5% to $1.33 and $1.61, respectively. For second-quarter 2018, the consensus mark has moved down 11 cents to 27 cents in the same time frame.
MGM Resorts currently has a Zacks Rank #4 (Sell).
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Las Vegas Sands Corp. (LVS): Free Stock Analysis Report
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Melco Resorts & Entertainment Limited (MLCO): Free Stock Analysis Report
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