The Zacks Gaming industry has had a decent run in the past year. The industry has gained 16.1% in the timeframe compared with the S&P 500’s rally of 25.7%.
Legalization of sports betting outside Nevada has given the industry a new lease of life. The Supreme Court overturned the Professional and Amateur Sports Protection Act (PASPA) that banned sports betting outside Nevada. The scope for casino operators will grow as, illegally, the activity is valued at billions of dollars annually in the United States.
Sports betting has been legalized in Delaware, Mississippi, New Jersey, New Mexico, West Virginia, Pennsylvania, Rhode Island, Montana, Indiana, Tennessee, Illinois and New Hampshire. Moreover, Connecticut, Kentucky, Michigan, Massachusetts, Maryland, Minnesota, Missouri, Kansas, Louisiana, Oklahoma, South Carolina, California, Oregon, Arizona and other states are likely to follow the trend in the coming months.
Moreover, improving tourism in Las Vegas and rising demand for gaming and leisure will continue to drive the industry. Most of the industry players are opting for alternative avenues to expand customer base and business.
In line with the industry’s growth, leading restaurant companies — MGM Resorts International (NYSE:MGM) and Wynn Resorts, Limited (NASDAQ:WYNN) — are trying out different strategies to generate profits. With both the companies carrying a Zacks Rank #3 (Hold), let’s analyze and find out which is poised better with respect to different parameters.
Price Performance and Valuation
Shares of MGM Resorts have gained 21% in the past year, while those of Wynn Resorts have surged 32.1%.
Since gaming companies are debt-laden, it makes sense to value them based on the EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) ratio. The industry is currently trading at 13.28X compared with the S&P 500’s 12.38X. MGM Resorts has an edge with a lower trailing 12-month P/E ratio of 11X compared with Wynn Resorts figure of 21.4.
Earnings History and Projected Growth
MGM Resorts reported lower-than-expected earnings in two of the trailing four quarters, with average miss being 4.6%. Moreover, Wynn Resorts missed the consensus estimate in two of the trailing four quarters, with average being 25%. Wynn Resorts has an impressive long-term earnings growth rate of 10%, while MGM Resorts has a long-term earnings growth rate of 6.8%.
Fundamental
MGM Resorts, one of the leading companies in the gaming and lodging industry, is well poised to grow on high brand awareness. The company’s superior business model, extensive non-gaming revenue opportunities, high-quality assets and attractive property locations are key catalysts. MGM Resorts is focused on asset light strategy to strengthen balance sheet. Instead of being a capital intensive, brick & mortar real estate business, the company intends to be a developer, manager and operator of major gaming, hospitality and entertainment properties. The company stated that it wants to focus on sports and live entertainment.
Given its strong brand name, Wynn Resorts is better positioned to command a premium rate compared to its peers in the gaming and lodging industry. Moreover, the company recently opened Encore Boston Harbor in Massachusetts. The company stated that it intends to upgrade Encore Boston Harbor to be the top performing Casino in the northeast. Apart from the gaming business in Macau, it has been increasingly focusing on driving non-gaming revenues. Given the decent visitation pattern in Macau, and infrastructure development and government’s efforts to boost tourism over there, non-gaming sources are expected to drive revenues going forward.
Our Take
Our comparative analysis shows that although MGM Resorts has an edge over Wynn Resorts in terms of valuation, while the higher projected long-term EPS growth puts Wynn Resorts in the lead. Moreover, in terms of price performance, Wynn Resorts has clearly outperformed MGM Resorts.
Key Picks
Better-ranked stocks worth considering in the same space include International Game Technology PLC (NYSE:IGT) and Churchill Downs Incorporated (NASDAQ:CHDN) . Both the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
International Game Technology has an impressive long-term earnings growth rate of 10%.
Churchill Downs has beat estimates in three of the trailing four quarters by 17.9%, on average.
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Wynn Resorts, Limited (WYNN): Free Stock Analysis Report
International Game Technology (IGT): Free Stock Analysis Report
MGM Resorts International (MGM): Free Stock Analysis Report
Churchill Downs, Incorporated (CHDN): Free Stock Analysis Report
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