1. MGM Resorts International (NYSE:MGM)
Forward P/E: 14.31
Analysts’ Upside Potential: 43.72%
MGM Resorts International (NYSE:MGM) is an American hospitality and entertainment company. It operates national and international locations, including hotels and casinos, meetings and conference spaces, live and theatrical entertainment experiences, and a wide range of restaurant, nightlife and retail offerings. MGM Resorts International (NYSE:MGM) has a portfolio of 31 unique hotels and gaming destinations globally.
The company has shown impressive financial performance, reporting record consolidated net revenues in the third quarter of 2024. This growth is driven by strong results from MGM China and increased activity in Las Vegas, where average daily rates (ADRs) and occupancy rates reached new highs.
In the first nine months of 2024, MGM Resorts International’s (NYSE:MGM) revenues grew by 9%, generating $1.7 billion in cash from operations. With capital expenditures around $750 million, this translates to a free cash flow of approximately $944 million. Such robust cash flow positions the company well for future investments and shareholder returns.
The company has been proactive in returning value to shareholders, repurchasing over $300 million in shares during the third quarter alone. MGM Resorts International (NYSE:MGM) has reduced shares outstanding by 40% since 2021.
MGM Resorts International (NYSE:MGM) is strategically focused on organic growth. This is evident as the company continues to enhance its resort operations and expand its online presence through BetMGM. In August, MGM Resorts International (NYSE:MGM) launched a unified single, digital wallet through BetMGM in Nevada to offer bettors seamless, nationwide connectivity. This showcases the company’s commitment to improving customer experience and leveraging technology for growth.
Additionally, in May, MGM Resorts International (NYSE:MGM) announced the completion of a $100 million redesign of its Mandalay Bay Convention Center. This initiative aims to strengthen the company’s position as a leader in meetings and events.
Analysts are also optimistic about MGM’s future and have a consensus buy rating on the stock. The 12-month median price target for the stock set by analysts indicates a potential upside of 43% from the current stock price.
Longleaf Partners stated the following regarding MGM Resorts International (NYSE:MGM) in its Q3 2024 investor letter:
“MGM Resorts International (NYSE:MGM) – Hospitality and gaming company MGM Resorts was the top detractor in the quarter. The day of the company’s earnings report, the stock price was down 13%; however, we saw nothing in the report that alters our long-term investment case. While this industry can experience some quarter-to-quarter volatility, we remain confident in the long-term earnings potential. MGM continues to generate substantial FCF and execute significant share buybacks, further boosting FCF per share. MGM is also enhancing its online offering and continuing to streamline its portfolio with more non-core asset sale potential ahead. We remain confident in the management team, led by CEO Bill Hornbuckle.”
Overall, MGM ranks first among the 10 most undervalued hotel stocks to invest in now. While we acknowledge the potential of hotel companies, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than MGM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. Insider Monkey focuses on uncovering the best investment ideas of hedge funds and insiders. Please subscribe to our free daily e-newsletter to get the latest investment ideas from hedge funds’ investor letters by entering your email address below.
