J.P. Morgan Adjusts Projections for MGM Resorts International

In a recent investor note dated October 15, J.P. Morgan has revised its forecasts for MGM Resorts International, reflecting a more cautious outlook on the company’s financial performance. Analyst Joseph Greff attributed this downshift in projections to a confluence of factors that have raised concerns about the casino and hospitality giant’s ability to maintain its competitive edge, particularly in Macau.

Changing Landscape in Macau

Greff’s analysis highlights the uneven performance of MGM Resorts, underscoring shaky third-quarter results and disappointing fiscal year 2025 forecasts. While maintaining an Overweight rating on MGM’s stock, he has reduced the price target by $6 to $51 per share, down from earlier estimates. This reduction comes as the stock trades around $39.90, indicating significant volatility following a steep decline in August.

One of the critical concerns raised by Greff is the potential for MGM to lose market share in Macau, even as the region shows signs of recovery post-COVID. Despite reported improvements, including the best post-pandemic results in the Special Administrative Region (SAR), Greff believes the competitive landscape is shifting, potentially impacting MGM’s positioning in the lucrative gaming market.

Las Vegas Hotel Operations Under Pressure

Aside from the challenges in Macau, J.P. Morgan’s analysis pointed to weaknesses in MGM’s hotel operations in Las Vegas. The absence of competition from properties like the Mirage and Tropicana should theoretically boost profitability; however, Greff outlined that the prevailing hotel room rates remain soft. This situation indicates a struggle for the company to capitalize on reduced competition, placing further strain on revenue expectations.

It is worth noting that Greff excluded any contributions from new projects MGM has in development when formulating his projections, suggesting that the current analysis might not fully capture the company’s long-term growth potential.

Q3 and Q4 Cash Flow Projections

Greff’s updated short-term forecasts present a mixed picture. He anticipates MGM’s cash flow from the Las Vegas Strip for the third quarter to reach approximately $754 million. Additionally, he expects $298 million from regional casinos and $231 million from operations in Macau. Notably, these figures are more optimistic than broader Wall Street predictions, hinting at a belief that MGM could outperform specific market expectations.

For the final quarter of 2023, Greff predicts a cash flow drop to $749 million from Las Vegas, with $275 million expected from regional operations, and $274 million from Macau. In contrast, Wall Street experts are anticipating a more favorable outcome for MGM’s Q4 revenue from the Las Vegas Strip.

Adjusted Fiscal Year 2025 Expectations

Looking further ahead, Greff has made significant downward adjustments to his FY 2025 estimates. He now projects MGM Resorts’ cash flow from the Las Vegas Strip to be around $2.9 billion, marking a 5% decrease from earlier expectations. Additionally, the analyst estimates $1 billion in cash flow from Macau, a notable decline of 13% from his previous forecast.

Despite these concerns regarding the Strip and Macau, there remains a silver lining for MGM. Greff has increased his optimistic outlook for the company’s regional casinos in the United States. His revised expectation for cash flow from this area is now set at $1.1 billion, representing a 3% increase. This suggests that while MGM faces hurdles in its marquee markets, it may still find strength in its diversified operations.

Conclusion

J.P. Morgan’s revisions to MGM Resorts International’s projections illuminate the volatility and evolving landscape within the gaming and hospitality sectors. While there are challenges ahead—especially in key regions like Macau and Las Vegas—there are also opportunities that could bolster MGM’s performance. The cautious optimism reflected in Joseph Greff’s notes highlights the complex nature of the current market, where adaptability and strategic developments will be crucial for sustaining growth in the coming years. As the industry continues to navigate recovery from the pandemic, stakeholders will keenly watch MGM’s response to these challenges, as well as its potential to capitalize on emerging opportunities in the entertainment landscape.