Supporting the overall strength of the gaming sector on a recent trading day, MGM Resorts International and Wynn Resorts emerged prominently following affirmations from a sell-side analyst who expressed optimism regarding travel and leisure stocks.
On Monday, Meredith Jansen, an analyst with HSBC, began coverage on nine travel and leisure equities assigning them “buy” ratings; MGM and Wynn Resorts were part of this list. Jansen particularly endorsed firms that have harnessed their dynamic brand and scale to generate sustained cash inflows.
In her announcement, Jansen voiced confidence in innovative technologies and burgeoning demand categories that have the potential to boost further the travel and leisure sector’s performance.
Led by these bullish sentiments, price targets were set at $111 for Wynn Resorts, indicating an approximate 23.3% increase from the closing figures of Monday. Similarly, MGM Resorts was given a price projection of $49, implying an increase of 34.4% from the Monday closing figure of $36.64.
Jansen emphasized the significance of the asset-light business model, a strategy that has gained popularity within the travel and leisure sector. This model, separating real estate from the operator’s muscle and brand expertise, is a strategy well-executed by MGM. The Las Vegas Strip-based Cosmopolitan’s property assets only form a minor fraction of MGM’s stakes as does a small investment in the gaming real estate investment trust (REIT), VICI Properties. Through various property sales over recent years, the Bellagio operator has secured liquid assets allowing for a reduction in debt, share buy-backs, and potential acquisitions.
Wynn Resorts has mirrored this strategy, as asserted by its announcement in February 2022, stating the sale of Encore Boston Harbor’s real estate assets to Realty Income for $1.7 billion. Although Wynn owns the real estate for Encore, Wynn’s namesake venue, and undeveloped property on the Strip, the operator has yet to show interest in divesting its Las Vegas real estate.
Encouraging future projections, Jansen mentioned that the boundaries between casinos, hotels, lodging REITs, online travel agencies, and cruise lines are likely to blur. This convergence is attributable to the journey towards a new ecosystem within the travel and leisure industry that strives for streamlined growth.
She pointed out three key differentiators within this evolving ecosystem. Firstly, the prioritizing of a digital transformation and overall guest experience. Secondly, the focus on a revised business model strategy, known as ‘asset-light 2.0.’ The third differentiator is the increasing significance of loyalty and rewards programs.
The final point is particularly noteworthy in the case of MGM, which recently teamed up with Marriott International in July to launch the MGM Collection with Marriott Bonvoy, a long-term strategic licensing agreement covering MGM’s 17 national properties, set to commence this month.