Macau and regional MGM properties ahead of Morgan Stanley's expectations for Q1

Morgan Stanley (MS) shows in its new research "MGM Resorts International: 1Q19: In line Vegas; Macau and Regionals Beat" that results for the first quarter of 2019 were ahead of expectations, driven by stronger Macau, CityCenter, and Regionals. Las Vegas was affected by weaker baccarat but management (mgmt) reiterated its 2019 outlook. The financial services company’s forecasts inch up for the third straight quarter, and it sees near term (NT) catalysts with real estate and Osaka. The price target (PT) remains at USD 35, with an overweight (OW) stock rating category.

After sending a letter to employees announcing 254 managers had been made redundant and more positions would be eliminated in coming weeks, MGM CEO Jim Murren said the first quarter came 'slightly better than expected,' with consolidated net revenues up by 13% and Adjusted EBITDA up 5%.

Among the conclusions in Morgan Stanley’s research, MGM's first quarter results were “slightly better” than expected driven by Macau and regionals. The management commentary that decisions around future real estate plans will be made in months and not quarters provides a near-term catalyst, as does progress with a license award in Osaka, which MS sees could be worth $4 per share to MGM.

MGM management also gave more details on its MGM 2020 plan, with a good amount of labor savings in place by the second quarter QE (quantitative easing). Morgan Stanley now forecasts 2019 / 2020  EBITDA of $3,250 M (from $3,240 M) / $3,615m (from $3,589m, guidance $3,600-3,900m but cons $3,431m). MS price target is unchanged at $35, based on 10 times 2020 estimates EBITDA (below MGM's long-term average 11x), and implies 24% upside; reiterate Overweight.

First quarter results

The property-level EBITDA of $871 M came in above Morgan Stanley Research estimates (MSe) of $856 M (consolidated $857 M). MGM China EBITDA of $191 M beat MSe $185 M / cons $180m, with Macau (peninsula) EBITDA at $129 M and Cotai EBITDA at $66 M. MGM management called out $16 M of high hold in Macau but hold was consistent with prior period and relatively in line with MS expectations.

Regional U.S. properties EBITDA of $207 M beat MSe $201 M and cons $195 M, supported by strength in MS from sports betting. Management highlighted same-store regional revenue growth was 3% and EBITDA 9%. Las Vegas Strip EBITDA of $404 M was in line with MSe $405 M but missed cons $427 M.

Revenue per available room (RevPAR) growth of 3.7% was ahead of MSe +2.4% but in line with cons +3.8%. On the positive side, slot revenues were up 6%, non-gaming revs were up 4%, and management suggested non-baccarat revs were also up. On the negative side, they highlighted that low baccarat hold and volumes drove a $35m year-on-year decline in Vegas EBITDA, which adjusting for, still implies residual Vegas EBITDA declined 2% year-over-year.

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