Posted on: October 23, 2023, 04:06h.
Last updated on: October 23, 2023, 04:47h.
On a day of broad-based strength for gaming equities, MGM Resorts International (NYSE: MGM) and Wynn Resorts (NASDAQ: WYNN) were two of the standouts after a sell-side analyst waxed bullish on travel and leisure stocks.
In a note to clients on Monday, HSBC analyst Meredith Jansen initiated coverage of nine travel and leisure equities with “buy” ratings. MGM and Wynn were among that group. The analyst favors names “that leverage scale and a differentiated brand to drive sustainable cash generation.”
We are bullish on new demand categories and the innovative technologies that can further enhance travel and leisure,” wrote Jansen.
She applied a price target of $111 to Wynn, which implies upside of about 23.3% from Monday’s close. HSBC tagged shares of MGM Resorts with a price forecast of $49. That implies upside of 34.4% from Monday’s closing print of $36.64.
Asset-Light Model Stands Out
Jansen highlighted the importance of the asset-light business model, which has become commonplace in the travel and leisure industry, noting it “separates the real estate ‘bricks’ from the operators’ brawn and the brands’ brains.”
That’s a methodology MGM has mastered with aplomb. Aside from a stake in the property assets of the Cosmopolitan on the Las Vegas Strip and a modest stake in gaming real estate investment trust (REIT) VICI Properties (NYSE: VICI), MGM’s real estate exposure is low as it pertains to its Strip and regional casino hotels. A series of property sales over the past several years freed up cash for the Bellagio operator to reduce debt, pursue acquisitions, and repurchase its shares.
Wynn took a page from that playbook, announcing in February 2022 that it sold the real estate assets of Encore Boston Harbor to Realty Income (NYSE:O) for $1.7 billion.
That operator owns the property of its namesake venue and Encore, as well as unused land on the Strip, all of which would likely fetch attractive price tags in a sale, but Wynn hasn’t signaled it’s looking to offload its Las Vegas real estate.
Expect Travel and Leisure ‘Convergence’
HSBC’s Jansen added that “the lines between hotels, lodging real estate investment trusts, casinos, cruise lines, and online travel agencies will continue to converge” as more companies in the travel and leisure arena embrace a new ecosystem that demands more efficient growth.
In this new ecosystem, three differentiators stand out,” she observed. “The first focuses on experience and digital transformation. The second is about the business model strategy — what we call asset-light 2.0. And third is the growing importance of loyalty and rewards programs.”
The point about loyalty programs is relevant to any casino operator, but it’s particularly noteworthy as it pertains to MGM. In July, the casino giant partnered with Marriott International to launch the MGM Collection with Marriott Bonvoy. That long-term strategic licensing agreement covers MGM’s 17 domestic properties and goes into effect this month.