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Is MGM Resorts International (MGM) The Most Undervalued Hotel Stock To Invest In Now?
We recently compiled a list of the 10 Most Undervalued Hotel Stocks To Invest In Now. In this article, we are going to take a look at where MGM Resorts International (NYSE:MGM) stands against the other hotel stocks.
Exploring the Hotel Market: Trends and Highlights
The hotel market is experiencing a significant transformation as it rebounds from the impacts of the COVID-19 pandemic. According to a report by Zion Market Research, the global hotel market was valued at $1.37 trillion in 2023. The market is expected to expand at a compound annual growth rate (CAGR) of 9.14% during 2024-2032 to reach a value of $2.99 trillion by the end of the forecast period. This growth is driven by increased travel demand, higher disposable incomes, and a resurgence in both leisure and business travel.
SiteMinder’s Hotel Booking Trends 2023 report reveals significant changes in the hospitality industry as it rebounds from the pandemic. The report analyzes bookings from travelers in 20 of the world’s most established destinations. According to the report, in 2023, international check-ins increased in all but one market compared to the previous year. Malaysia, New Zealand, and Taiwan experienced the biggest jumps due to their border reopenings in 2022.
In 2023, hotels raised their prices while still achieving record check-ins. The average daily rate (ADR) globally reached $192, reflecting an 11% increase from 2022 and a 38% rise compared to 2019. Italy saw the largest increase, with its ADR rising by $42 or 20% year-on-year. This indicates that hotels are responding to strong pent-up demand by adjusting their pricing strategies.
Despite the increase in prices, travelers are booking shorter stays. According to the report, 81% of hotel stays globally were for just one or two nights. Only a small fraction of stays were longer than three nights, highlighting a shift in traveler preferences.
Investor Sentiment in 2024
Overall, hotel investors are feeling positive about the market for 2024. In the US, many investors are eager to increase their investments in hotels.
CBRE Hotels Research conducted a Global Hotel Investor Intentions Survey in early 2024 to evaluate the hotel investment landscape. The results show that investor sentiment in the US is strong, with 50% of respondents planning to increase their allocation to hotel acquisitions this year. About 35% expect their acquisition activities to stay the same as in 2023, while less than 16% anticipate a decrease.
Despite high interest rates, many investors are looking to buy hotels. Over 70% of those surveyed said they are focusing on value-added and opportunistic investments. These types of acquisitions allow investors to improve properties by adding rooms, redesigning spaces, or enhancing amenities to boost returns and long-term value.
Our Methodology
To compile our list of the 10 most undervalued hotel stocks to invest in now, we used the Finviz and Yahoo stock screeners to find the largest hotel companies. We also reviewed our own rankings and consulted various online resources to compile a list of the largest publicly traded hotel companies, the most popular hotel stocks, and REITs.
From an initial pool of over 30 hotel stocks, we focused on those trading at under 20 times their forward earnings as of November 11. Then, we selected the stocks that analysts believe possess the greatest potential for growth. Finally, we ranked the 10 most undervalued hotel stocks to invest in now based on their average price target upside potential according to analysts as of November 11, 2024.
At Insider Monkey we are obsessed with 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).
Is MGM Resorts International (MGM) The Most Undervalued Hotel Stock To Invest In Now?
Aerial shot of an entertainment resort, its buildings and gaming amenities sprawling along the seafront.
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 1st on our list of the most undervalued hotel stocks to invest in now. While we acknowledge the potential of MGM as an investment, 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.
