We recently published a list of 10 Best Hotel Stocks To Buy Now. In this article, we are going to take a look at where MGM Resorts International (NYSE:MGM) stands against other best hotel stocks.
According to Cognitive Market Research, the size of the global hotel market was $784.82 billion in 2023 and is projected to grow to $1,126.04 billion by 2030. From 2023 to 2030, the hotel industry’s compound annual growth rate is anticipated to be 5.29%. Regionally, North America holds a substantial 30.66% market share, mostly because of the region’s abundance of hotels and resorts.
Recently, in Q2 2024, demand for hotels rose 1.3% year over year, above a 0.6% increase in supply and leading to a 0.7% increase in occupancy in the US. Secondly, a 2.2% year-over-year rise in Q2 2024 revenue per available room (RevPAR) was driven by higher occupancy combined with a 1.5% increase in average daily rate (ADR) YoY. The benefits were mostly due to two factors: the early Easter this year, which came in late Q1 2024 and contributed to higher business travel in the second quarter of this year compared to the previous year, and the complete solar eclipse, which encouraged more leisure travel throughout a significant portion of the US. Although the demand for hotels increased in the second quarter of 2024, short-term rentals and cruise lines maintained their market share gains. Additionally, the average hotel hourly wage was still more than $10 less than the average hourly wage in the country.
As per Frederic Dominioni, the Chief Revenue Officer of Solonis and a leading provider of modern property management solutions, there are five important trends driving the recovery in the hotel industry post-pandemic. Firstly, guests’ expectations are rising because of rising room rates, which increased by 54% from January 2022 to 2023. Secondly, the rise in “workcation” travels brought about by hybrid work has raised the need for flexible locations and services. Third, there is still a high desire for self-service choices and mobile technology, which helps to ease the staff shortage. Fourth, with 88% of travelers looking for local adventures, travel experiences have taken center stage. Lastly, given that 65% of travelers give priority to eco-friendly lodging, sustainability is essential. Hotels will prosper if they adjust to these developments through improving amenities and customizing visitor experiences.
Looking ahead, CBRE’s 2024 Global Hotels Outlook reveals that 2024 will be another year of progress for the US economy after 2023 saw RevPAR reach a record high. The continuous improvement in inbound foreign travel, the meetings and group events segment’s solid performance, and rising interest from leisure visitors are all expected to contribute to RevPAR growth, which is predicted to reach almost 3% year over year. Urban areas that are more appealing to leisure travelers and have more expensive hotels should do well, but competition from other sources, such as cruise lines, short-term rentals, and camping, is projected to restrict demand as well as pricing for traditional hotels. Hotel salary growth slowed to 4.6% in Q2 2024 from 5.5% in Q1, but it was still higher than the 4.0% hourly wage rise for all employees due to a decrease in job opportunities in the hotel industry. In Q2 2024, occupancy rates for all types of locations stayed below 2019 levels. Interstate and town sites were the most similar to their 2019 levels, at 99%, while urban and resort destinations were 94% and 96%, respectively.
On the other hand, Warren Marr, US Hospitality & Leisure Industry Advisor stated:
“Continued economic uncertainty, an upcoming election, and continued geopolitical tensions are expected to impact hotel performance in the US through 2025. Since our last issue of Hospitality Directions US in November, we’ve seen two additional quarters of decline in hotel occupancies, for a total of four, but expect to see a gradual rebound the balance of this year and into next, off of easier comps. That said, we expect average daily rate growth to trail PCE inflation through the rest of this year and 2025.”
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here)
Aerial shot of an entertainment resort, its buildings and gaming amenities sprawling along the seafront.
MGM Resorts International (NYSE:MGM)
Number of Hedge Fund Holders: 44
MGM Resorts International (NYSE:MGM) is the largest resort operator on the Las Vegas Strip, with 35,000 hotel guest rooms and suites accounting for roughly one-fourth of all units in the market. The MGM Grand, Mandalay Bay, Park MGM, Luxor, New York-New York, and Bellagio are among the company’s properties in Las Vegas. In 2023, the Strip accounted for around 62% of all EBITDAR. The US sports and iGaming divisions of MGM presently account for a high single-digit portion of their overall revenue. In early 2018, a new resort on the Cotai Strip opened under the company’s ownership, which also includes the 56 %-owned MGM China casinos.
Following the Chinese government’s removal of COVID limitations on January 8, 2023, MGM Resorts’ Macao sales, which accounted for 17% of 2023 EBITDAR, experienced a significant resurgence in 2023, surpassing 2019 levels in the second quarter. Additionally, despite the increased operational risk that comes with government monitoring in Macao, the company is still well-positioned to take advantage of the region’s promising long-term growth prospects, as per analysts.
MGM should benefit from its dominant omnichannel presence in the US in the fiercely competitive sports betting and iGaming growth areas. Furthermore, Morningstar analysts anticipate that the firm will have a Japanese-integrated resort in 2030, which will contribute about 3% of overall EBITDAR and yield competitive returns on capital investments in the low teens.
Citing solid Q2 2024 performance across all segments and a bullish outlook for the company’s International Digital division, BTIG analyst Clark Lampen has reaffirmed a “Buy” rating on MGM Resorts with a $52.00 price objective. JMP Securities also maintained a “Buy” rating with a price objective of $57.00.
MGM Resorts International (NYSE:MGM)’s diversification is contributing to the expansion of its revenue stream and its client base, which are increasing the company’s earnings and margins.
Keith Meister’s Corvex Capital is the largest shareholder in the company, with 5,859,478 shares worth $260.40 million.
Overall, MGM ranks 3rd on our list of Best Hotel Stocks To Buy Now. While we acknowledge the potential of MGM as an investment, our conviction lies in the belief that some 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: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. This article is originally published at Insider Monkey.