In this piece, I evaluated two casino stocks, MGM Resorts International (NYSE:MGM) and Caesars Entertainment (NASDAQ:CZR), to determine which is better. For reasons explained throughout the article, it looks like MGM is the better stock.
Generally, 2022 was solid for the casino industry due to pent-up demand from the pandemic. In fact, U.S. commercial casino operators had their best year ever in 2022, racking up over $60 billion in revenue, according to the American Gaming Association. Traditional in-person gambling contributed over 80% of the industry’s revenue in 2022, while online betting contributed almost 20%.
However, not all casino operators are thriving. For example, the differences between MGM Resorts and Caesars Entertainment are stark. One was profitable in all recent years except 2020, the height of the pandemic, while the other was barely profitable before the pandemic and has been losing money ever since.
A closer look at their fundamentals and other trends reveals the reasons for these stark differences.
MGM Resorts International (NYSE:MGM)
MGM Resorts’ numbers reveal an exceptionally stable casino operator that stumbled a bit in 2020 during the height of the lockdowns but has since recovered its revenue to pre-pandemic levels. In fact, the casino operator’s 2022 revenue exceeded its 2019 result. Other positive developments, like the new 10-year gaming concession in Macau, speak to a bright future for MGM Resorts. Thus, a bullish view looks appropriate.
While MGM shares are roughly flat for the last 12 months, they’re already up 28% year-to-date. However, the stock is slightly off its peak of around $51 a share in October 2021. One thing to consider is that casinos are relatively recession-resistant, despite the typical expectation that gambling would go down during a recession because it’s considered a discretionary sector.
Additionally, MGM has a significant presence in China, which is starting to ramp back up after multi-year lockdowns due to COVID. Thus, even though the pent-up demand in the U.S. may be waning, China is about to trigger a fresh wave of pent-up demand as its zero-COVID policy finally reaches an end. In fact, MGM management said on their last earnings call that guests are returning to their China casinos “in force,” just as they did in Las Vegas right after the COVID restrictions were lifted there.
Finally, MGM has plenty of cash — $5.9 billion in cash and equivalents. However, according to Moody’s (NYSE:MCO), one concern is that MGM may need to refinance a significant amount of its debt during a time of substantially higher interest rates than what it has enjoyed in the recent past. This is one area that requires monitoring.
What is the Price Target for MGM Stock?
MGM Resorts has a Strong Buy consensus rating based on 11 Buys, two Holds, and zero Sell ratings assigned over the last three months. At $55.04, the average MGM stock price target implies upside potential of 29.2%.
Caesars Entertainment (NASDAQ:CZR)
A closer look at Caesars’ fundamentals reveals a much weaker company that’s been in the red since 2020. In fact, the company generated only $81 million of net income in 2019 and $95 million in 2018, and while its revenue has surged due to the merger with Eldorado Resorts in 2020, its income now remains in the red. Thus, a bearish view seems appropriate for now.
Unlike MGM, Caesars lacks any significant presence in China, so it won’t enjoy the same tailwinds from China’s reopening. According to its last earnings report, Caesars had only $1 billion in cash and equivalents, although it did manage to permanently reduce its total debt by over $1.2 billion in 2022.
One bit of good news for Caesars is that the losses in its Digital unit tumbled dramatically in the fourth quarter, falling from $360 million in the fourth quarter of 2021 to $35 million in 2022. However, on a full-year basis, the Digital segment’s losses actually widened from $580 million in 2021 to $790 million in 2022, so this bears watching.
What is the Price Target for CZR Stock?
Caesars Entertainment has a Strong Buy consensus rating based on nine Buys, two Holds, and zero Sell ratings assigned over the last three months. At $71.18, the average Caesars Entertainment stock price target implies upside potential of 42.3%.
Conclusion: Bullish on MGM, Bearish on CZR
As far as stability, MGM is on far better footing than Caesars. MGM has a lot more cash on hand and is operating at a profit, while Caesars has been losing money since 2020 when it acquired Eldorado Resorts. Finally, China will be a critical tailwind for MGM in the coming year due to pent-up demand, although its debt could become an issue.
