MGM Resorts (MGM)

Hospitality and casino entertainment company MGM Resorts (NYSE:MGM) met Wall Street’s revenue expectations in Q1 CY2025, but sales fell by 2.4% year on year to $4.28 billion. Its non-GAAP profit of $0.69 per share was 51.5% above analysts’ consensus estimates.

Company Overview

Operating several properties on the Las Vegas Strip, MGM Resorts (NYSE:MGM) is a global hospitality and entertainment company known for its resorts and casinos.

Casino operators enjoy limited competition because gambling is a highly regulated industry. These companies can also enjoy healthy margins and profits. Have you ever heard the phrase ‘the house always wins’? Regulation cuts both ways, however, and casinos may face stroke-of-the-pen risk that suddenly limits what they can or can't do and where they can do it. Furthermore, digitization is changing the game, pun intended. Whether it’s online poker or sports betting on your smartphone, innovation is forcing these players to adapt to changing consumer preferences, such as being able to wager anywhere on demand.

Competitors in the casino and hospitality industry include Caesars Entertainment (NASDAQ:CZR), Las Vegas Sands (NYSE:LVS), and Wynn Resorts (NASDAQ:WYNN).

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, MGM Resorts grew its sales at a sluggish 7.4% compounded annual growth rate. This fell short of our benchmark for the consumer discretionary sector and is a rough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or trend. MGM Resorts’s annualized revenue growth of 10.1% over the last two years is above its five-year trend, but we were still disappointed by the results. Note that COVID hurt MGM Resorts’s business in 2020 and part of 2021, and it bounced back in a big way thereafter.

We can dig further into the company’s revenue dynamics by analyzing its three most important segments: Casino, Hotel, and Dining, which are 52.7%, 20.2%, and 18% of revenue. Over the last two years, MGM Resorts’s revenues in all three segments increased. Its Casino revenue (Poker, sports betting) averaged year-on-year growth of 21.1% while its Hotel (overnight bookings) and Dining (food and beverage) revenues averaged 3.9% and 4.3%.

This quarter, MGM Resorts reported a rather uninspiring 2.4% year-on-year revenue decline to $4.28 billion of revenue, in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and implies its products and services will see some demand headwinds.

MGM Resorts’s operating margin has been trending down over the last 12 months and averaged 9% over the last two years. The company’s profitability was mediocre for a consumer discretionary business and shows it couldn’t pass its higher operating expenses onto its customers.

In Q1, MGM Resorts generated an operating profit margin of 9%, down 1.5 percentage points year on year. This reduction is quite minuscule and indicates the company’s overall cost structure has been relatively stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

MGM Resorts’s EPS grew at an astounding 70.1% compounded annual growth rate over the last five years, higher than its 7.4% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t expand.

In Q1, MGM Resorts reported EPS at $0.69, down from $0.74 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street expects MGM Resorts’s full-year EPS of $2.54 to shrink by 11.9%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

MGM Resorts has shown mediocre cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 8.1%, subpar for a consumer discretionary business.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

MGM Resorts historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 6.8%, somewhat low compared to the best consumer discretionary companies that consistently pump out 25%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. On average, MGM Resorts’s ROIC increased by 2 percentage points annually over the last few years. This is a good sign, and we hope the company can continue improving.

Debt is a tool that can boost company returns but presents risks if used irresponsibly. As long-term investors, we aim to avoid companies taking excessive advantage of this instrument because it could lead to insolvency.

MGM Resorts’s $31.57 billion of debt exceeds the $2.27 billion of cash on its balance sheet. Furthermore, its 12× net-debt-to-EBITDA ratio (based on its EBITDA of $2.37 billion over the last 12 months) shows the company is overleveraged.

At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. MGM Resorts could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.

We hope MGM Resorts can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.

We were impressed by how significantly MGM Resorts blew past analysts’ EPS expectations this quarter. On the other hand, its EBITDA missed significantly and its Casino revenue fell short of Wall Street’s estimates. Zooming out, we think this was a decent quarter featuring some areas of strength but also some blemishes. The stock traded up 3.4% to $32.50 immediately after reporting.

Updated: May 22, 2025 at 10:48 PM EDT

Before deciding whether to buy MGM Resorts or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

We see the value of companies helping consumers, but in the case of MGM Resorts, we’re out. First off, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its astounding EPS growth over the last five years shows its profits are trickling down to shareholders, the downside is its projected EPS for the next year is lacking. On top of that, its relatively low ROIC suggests management has struggled to find compelling investment opportunities.

MGM Resorts’s P/E ratio based on the next 12 months is 14x. This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $45.77 on the company (compared to the current share price of $31.38).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

To get the best start with StockStory, check out our most recent stock picks, and then sign up for our earnings alerts by adding companies to your watchlist. We typically have quarterly earnings results analyzed within seconds of the data being released, giving investors the chance to react before the market has fully absorbed the information. This is especially true for companies reporting pre-market.