Posted on: October 23, 2023, 04:06h.
Last updated on: October 23, 2023, 04:06h.
On a day of broad-based strength for gaming equities, MGM Resorts International (NYSE: MGM) and Wynn Resorts (NASDAQ: WYNN) were two of the standout performers after a sell-side analyst expressed optimism about travel and leisure stocks.
HSBC analyst Meredith Jansen initiated coverage of nine travel and leisure equities, including MGM and Wynn, with a “buy” rating. Jansen believes that these companies have the potential to generate sustainable cash flow through their scale and strong brands.
We are optimistic about new demand categories and the innovative technologies that can enhance travel and leisure experiences,” wrote Jansen.
Jansen set a price target of $111 for Wynn, suggesting a potential upside of approximately 23.3% from the current closing price. The target price for MGM Resorts is $49, indicating a potential upside of 34.4% from the closing price of $36.64.
Asset-Light Model Stands Out
Jansen emphasized the significance of the asset-light business model in the travel and leisure industry. This model separates the real estate assets from the operations and brand of the companies.
MGM has successfully implemented this methodology. Apart from its stake in the property assets of the Cosmopolitan on the Las Vegas Strip and a minor investment in gaming real estate investment trust (REIT) VICI Properties (NYSE: VICI), MGM’s real estate exposure is limited. The company has sold several properties to reduce debt, pursue acquisitions, and buy back its shares.
Following a similar approach, Wynn sold the real estate assets of Encore Boston Harbor to Realty Income (NYSE:O) for $1.7 billion in February 2022.
However, Wynn has not indicated any plans to sell its Las Vegas real estate, which includes its namesake venue, Encore, and unused land on the Strip, all of which could command attractive prices in a potential sale.
Expect Travel and Leisure ‘Convergence’
Jansen believes that hotels, lodging real estate investment trusts, casinos, cruise lines, and online travel agencies will continue to converge as more companies in the travel and leisure sector adopt a new ecosystem for efficient growth. She identified three key differentiators: experience and digital transformation, asset-light business models, and the growing importance of loyalty and rewards programs.
This growing emphasis on loyalty programs holds particular significance for MGM. The company recently formed a strategic partnership with Marriott International to launch the MGM Collection with Marriott Bonvoy, covering MGM’s 17 domestic properties.