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The New York New York Las Vegas, one of MGM’s marquee properties there. (Image: Vegas Slots)
MGM, the owner of the Bellagio and Mandalay Bay in Las Vegas, is the second-largest US gaming company by market value, trailing only Las Vegas Sands Corp. (NYSE:LVS). The stock is up 20.6 percent year-to-date, good for the fourth-best performance among the “big four” of domestic casino operators with the others being LVS, Wynn Resorts Ltd. (NASDAQ:WYNN), and Caesars Entertainment Corp. (NASDAQ:CZR).

The macro backdrop supports continued revenue growth in the U.S. and China, and new projects and expansions will continue to build value,” said Priest in an interview for Barron’smidyear roundtable. “A greater focus on entertainment and events, especially in Las Vegas, will prove revenue-enhancing, as well.”

MGM runs two casinos in Macau, the only Chinese territory where gambling is legal, the MGM Macau and MGM Cotai. Earlier this month, shares of US-based gaming companies with Macau exposure, including MGM, rallied on news that trade tensions between the US and China are thawing and that the two sides will hold talks on how to improve one of the world’s most important economic relationships.

Feeling The Effects Of Non-Gaming Revenue, Cost-Cutting
MGM Resorts is one largest operators on the Las Vegas Strip and has some other notable pieces in the US, including the Empire City Casino in Yonkers, N.Y.. the closest casino to Manhattan; the MGM Grand Detroit and the Borgata in Atlantic City; the top revenue-producing casino on the Boardwalk.

Although it runs some of the most recognizable casinos in the US, MGM generates about half its domestic revenue from non-gaming activities, according to Epoch’s Priest. Additionally, the operator Excalibur and Luxor on the Strip has been pruning costs and the full impact of those efforts could be felt by investors next year.

Earlier this year, MGM unveiled its “2020 Plan,” an effort aimed at reducing expenses by $100 million this year and another $200 million by the end of 2021. The company has trimmed its headcount by more than 1,000 staffers this year.

“We look for an expansion in Ebitda margins, an improvement in return on investment from marketing, and the use of analytics to drive greater labor efficiencies,” said Priest in the Barron’s interview. “Expense savings should begin to flow in the second half of this year and into 2020.”

More Catalysts
Priest, who oversees nearly $37 billion in assets at Epoch, sees MGM benefiting from its 42.5 percent stake in the T-Mobile Arena, home of the NHL’s Golden Knights; as well as the NFL’s Raiders moving to Sin City next year. In advance of the Raiders’ move, there is talk that the NFL could hold the 2020 draft at the famed fountains at MGM’s Bellagio on the Strip.

As MGM decreases its debt burden, which is among the highest in the gaming industry, more shareholder rewards could be in the cards.

“When the leverage ratio falls below four times net debt to Ebitda (earnings before interest, depreciation, and amortization), investors can expect greater cash returns through increased stock buybacks and higher dividends,” said Priest.

The money manager said MGM stock has the potential to trade into the mid-$30s after settling just above $29 last Friday.

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