MGM Resorts International (MGM) and Boyd Gaming Corporation (BYD) are two of the largest U.S.-based casino operators. MGM operates through three segments — Las Vegas Strip Resorts, Regional Operations, and MGM China, while BYD operates through Las Vegas Locals, Downtown Las Vegas, and Midwest & South.

The casino industry witnessed manifold changes last year, with the COVID-19 pandemic pushing avid gamblers to switch to online gambling in lieu of access to physical casinos. While many casino operators have already enhanced their online presence, this year is expected to see continued growth in online gambling platforms and apps. In fact, with gradual reopening in some areas of the United States, leading casino companies like MGM and BYD should see significant improvement in their businesses this year.

Both  companies have generated decent returns over the past five years. While MGM gained 116.3% over this period, BYD returned 255.3%. In terms of past six-month performance, BYD is the clear winner with108.3% gains versus MGM’s 88.2% returns.

But which of these stocks is a better pick now? Let’s find out.

Latest Movements

On February 4, Richard Childress Racing announced a multi-faceted partnership with BetMGM, a subsidiary of MGM and Entain Plc, to collaborate with the iconic NASCAR organization  a variety of marketing initiatives. This innovative partnership should push MGM to the forefront of the sports betting and online gaming industry.

In January, BetMGM and The Athletic entered  a partnership in which BetMGM is The Athletic’s exclusive sports betting partner in the U.S. . This move should  enable BetMGM to engage new customers for  its premium offering.

Last  year, BYD and FanDuel Group debuted the FanDuel Par-A-Dice Sportsbook in the state of Illinois. BYD expects  the FanDuel Par-A-Dice Sportsbook to  quickly become Illinois sports bettors’ mobile app of choice as it continues to expand its mobile and retail offerings.

Recent Financial Results

In the third quarter ended,September30, 2020, MGM’s total revenue declined 66% year-over-year to $1.10 billion. The company’s Las Vegas Strip Resort’s revenue declined 68% from its  year-ago value to $481 million due to  operational restrictions related to the COVID-19 pandemic. Its adjusted property EBITDA increased 7% year-over-year.

BYD’s adjusted EBITDA has increased 12.8% year-over-year to $212.93 million in the third quarter ended September 30, 2020. The company’s Las Vegas Locals segment’s operating margin grew 1600 basis points from the prior-year quarter to 46.1%.

Past and Expected Financial Performance

MGM’s total assets have grown at a CAGR of 8.3% over the past three years. Analysts expect MGM’s revenue to increase 77.9% in 2021. The company’s EPS is expected to grow 33.3% in the current year.

In comparison, BYD’s total assets have grown  at a CAGR of 12.2% over the past three years. Analysts expect the company’s revenue to increase 30.7% in the current year. BYD’s EPS is expected to grow 840.7% in 2021.

Profitability   

MGM’s trailing-12-month revenue is 2.8 times BYD’s. However, BYD is more profitable with a gross profit margin of 61.6% versus MGM’s 36.5%.

In fact, BYD’s EBITDA margin of 20.7% compares favorably with MGM’s negative value.

Valuation

In terms of trailing-12-month price/sales, MGM is currently trading at 2.69x, 3.1% more expensive than BYD, which is currently trading at 2.61x. Also, its trailing-12-month EV/Sales of 5.77x is 30.2% higher than MGM’s 4.43x.

BYD looks much more affordable compared to MGM.

POWR Ratings

MGM has an overall rating of C, which equates to a Neutral in our proprietary POWR Ratings system. However, BYD has an overall rating of B, which translates to a Buy.

The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

BYD has a Growth Grade of B, which is consistent with the expected growth in its earnings and revenues. In comparison, MGM has a Growth Grade of F.

Moreover, BYD has a grade of B for Quality, reflecting its better fundamentals compared to MGM, which has a grade of C.

In terms of Value Grade, both MGM and BYD have a C, consistent with their higher-than-industry EV/Sales ratio.

Of the 30 stocks in the Entertainment – Casinos/Gambling industry, MGM is ranked #21 and BYD is ranked #4.

Beyond what I have stated above, our POWR Ratings system also rates both MGM and BYD for Momentum, Stability, and Sentiment. Get all of MGM’s ratings here. Also, click here to see the additional POWR Ratings for BYD.

The Winner

MGM and BYD are both good long-term investment bets considering their market dominance and continued expansion. However, to us MGM appears to be a better buy because it is a cheaper and more profitable investment option for riding the industry’s rebound.

There are several other stocks in the Entertainment – Casinos/Gambling industry with Buy ratings. You can access them here.

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BYD shares were trading at $53.77 per share on Wednesday afternoon, up $0.33 (+0.62%). Year-to-date, BYD has gained 25.28%, versus a 4.05% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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