Time to Gamble on MGM Resorts?

07/24/2020 5:00 am EST

Focus: CONSUMER

David Fried

Editor, The Buyback Letter

Casino and resort operator MGM Resorts International (MGM), an S&P 500 global entertainment company with 30 U.S. and international properties, is a new addition to our Buyback Portfolio, explains David Fried, editor of The Buyback Letter.

In the U.S., venues range from Maryland to Massachusetts, Michigan, Mississippi, Nevada, New York, and Ohio.

In China, MGM resorts are in Macau (the largest gaming destination in the world), Cotai and Diaoyutai, and the group is bidding on a gaming license in Japan. Its very recognizable brands include Bellagio, MGM Grand, ARIA and Park MGM.   

It hasn’t been a good year for the gambling industry. However, analysts say gambling isn’t going to end, and Las Vegas isn’t going away.

In the meantime, MGM seems to have the cash reserve to last more than a year even if business doesn’t return to normal in that time, and it is one of the businesses expected to show a quick return when customers are allowed out freely again.

When that will be is anyone’s guess. Las Vegas — which shut down in March — reopened a month ago. But we are not out of the woods yet, and re-openings for regions and businesses may even be reversed as COVID numbers increase. MGM has instituted a mask requirement and other safety protocols as it reopens resorts over time.

The first quarter included a lockdown in China, followed by one in this country. Q1 results showed revenue fell 29% year-over-year to $2.3 billion. Earnings were $806.9 million. The stock hit a multi-year low in March, but since then it has nearly tripled, although it is still below where it traded before the pandemic hit.

For the past several years, MGM has been strengthening its market-leading sports betting and online gaming platform and brands — BetMGM and Partypoker — which will operate in 11 states by the end of this year and has secured access to 19 states.

BetMGM is expected to generate more than $130 million in revenue this year, mostly from iGaming in New Jersey. The U.S. iGaming market is expected to produce revenues of nearly $7 billion by 2025.  In the last 12 months, management has reduced shares outstanding by 8.187%.

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