Is MGM Resorts Stock Headed Higher in 2017?

By Dan Caplinger Markets Fool.com

International casino resort company MGM Resorts (NYSE: MGM) had a strong 2016, riding the wave of optimism about the future of the industry. MGM Resorts stock climbed 27% for the year, and some investors have made predictions that 2017 could be even stronger for the company's earnings. Even though some cyclical trends are starting to move in a more favorable direction, the owner of the MGM Grand and Mirage casinos in Las Vegas still has to overcome intense competition to make the most of its opportunities.

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Let's take a closer look at MGM Resorts stock to see whether it will add 2017 to its history books as another up year for the casino company.


Image source: MGM Resorts.

Stats on MGM Resorts

Average Stock Target Price

$34.42

Full-Year 2016 EPS Estimate

$1.18

Full-Year 2017 EPS Estimate

$1.37

Full-Year 2016 Sales Growth Estimate

2.6%

Full-Year 2017 Sales Growth Estimate

19.3%

Forward P/E

21.2

Data source: Yahoo! Finance.

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How MGM Resorts stock can keep moving higher

Investors have plenty of optimism about MGM Resorts' future, with the average price target from those following the stock offering almost 20% upside compared to its current level. Some more ambitious analysts believe that MGM stock could jump by a third or more, but even relatively pessimistic assessments have the stock gaining ground from where MGM shares closed to end 2016.

Compared to its industry peers, MGM falls more or less in the middle in terms of future expectations. Most believe that Wynn Resorts (NASDAQ: WYNN) will outperform MGM with faster earnings and revenue growth, but they think that Las Vegas Sands (NYSE: LVS) won't be able to match MGM's gains in those key areas.

MGM's improving fortunes have come from a couple of key areas. First and foremost, MGM Resorts has less exposure to the Macau market than Las Vegas Sands and Wynn Resorts, and so MGM hasn't taken the same degree of hit that its rivals have from the huge declines in those markets. That could change in the near future, when the MGM Casino Cotai opens in the second quarter. But now, Macau is starting to rebound, and so MGM's move could turn out to be particularly well timed.

Meanwhile, MGM's focus on the Las Vegas market has helped it stabilize its business and benefit from the slow but steady growth in Nevada's gambling mecca. Vegas certainly hasn't produced blockbuster growth for MGM or any of its peers, but reliable results have put MGM in a position in which it can work on controlling and slowly reducing its outstanding debt. Given how crippling its high leverage in the aftermath of the financial crisis, MGM's progress is noteworthy and could help support the stock going forward.

MGM's risks

That's not to say that MGM Resorts doesn't have challenges to overcome. The company has made big bets on a rebound for the U.S. East Coast gaming market, including the complete takeover of the Borgata casino in Atlantic City from its former joint venture partner, the completion of the National Harbor resort near the nation's capital, and the ongoing development of the MGM Springfield casino in west-central Massachusetts. Skeptics argue that the gambling market might already be saturated in the Northeast, and the planned Wynn Resorts property near Boston could make Springfield's casino look extremely isolated from population centers by comparison.

Yet MGM also has opportunities to take advantage of more lucrative new markets. Many believe that Japan might open up its market to casino resorts in the near future, and unlike Sands and Wynn, MGM's minimal presence in Macau means that it won't need to worry as much about cannibalizing its business in Asia with a new Japanese property. That said, any delay in Japan's expected move could put pressure on the stock, as investors grow impatient with lack of progress.

MGM Resorts has a number of ways it could keep its stock moving higher in 2017, and investors hope that it will take advantage of all of them to add to their profits. Even though MGM stock is now trading at its highest levels since the financial crisis, the company has a lot of work left to do if it wants to restore itself to the glory days of the mid-2000s.

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Dan Caplinger owns shares of Wynn Resorts. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.