MGM Resorts Is Worth a Roll of the Dice

MGM Resorts (NYSE:MGM) stock represents an investment in one of the country’s leading gaming companies. MGM has a world-class group of properties in Las Vegas. It also has numerous regional casinos around the country, and it has a strong foothold in Macau as well.

MGM Resorts Is Worth a Roll of the Dice
Source: Jason Patrick Ross /

As you might expect, investors dumped MGM earlier this year, sending shares below $5 at one point. There was justifiable fear of what might happen with all the casinos closed. Remember that MGM has exposure to Macau, which closed down early on in the novel coronavirus crisis. By the time Vegas had to close as well, people anticipated a total wipeout.

Thankfully, it wasn’t to be. MGM stock has already shot back up significantly, recovering roughly half its losses. Properties are starting to reopen, and there’s a clear timeline to get Las Vegas going again.

Vegas Is Back

This is a big week for MGM, and other Vegas casino operators. That’s because they have the official go-ahead to start reopening their properties on June 4.

It won’t be a full reopening immediately. Casinos will have to operate at half capacity for the time being. Some events, such as club pool parties won’t be allowed as of yet. And the casinos will have to spend more on cleaning, hygiene, and other virus-fighting measures. It’s unclear what the impact will be on some famous casino perks, such as the luxurious buffet dining.

Still, all in all, it’s great news for MGM that they can start pulling in major revenues again. Once reopening happens, we’ll see how much traffic actually shows up.

Three Steps to Normalcy

Interim CEO Bill Hornbuckle explained the reopening sequence as a three part process, saying:

I think over time there’s three buckets of folks who come. I think there’s those who will come immediately, irrespective of the health concerns. I think there’s a bucket of people that we need to convince that it’s safe and it’s still a fun and encouraging and engaging environment. And there’s a third bucket of folks who I think will wait and see how this thing plays out and ultimately come and enjoy Las Vegas probably next year.

The near-term outlook for MGM’s share price has much to do with how much of the general public falls into each of these three buckets. Vegas makes up most of MGM’s business, and Macau is still struggling to bring in much traffic now. So, Thursday’s reopening is absolutely pivotal.

That said, MGM has put itself in decent shape. It has more than $5 billion in cash, and raised $700 million recently with a sale-leaseback deal. With its burn rate of less than $300 million per month, MGM had plenty of cash to make it through the crisis even if everything remained closed. And with Vegas reopening on Thursday, MGM should see its losses slow down dramatically in coming weeks and months.

New Management

MGM’s long-term CEO James Murren is stepping aside. He announced his departure in February, just in time to miss the coronavirus’ impact on the company. Always known as a transactions-focused CEO, Murren nailed one final jackpot, scoring $32 million as he left the company.

While Murren accomplished a lot as CEO, he was more of a finance and deals guy. For now, MGM has put the former Chief Operating Officer, Bill Hornbuckle, in charge of the company. Hornbuckle went to university in Las Vegas and has worked in the gaming industry for 37 years. It’s his passion, and he could bring some much-needed execution and operational skill at this rocky point in MGM’s corporate history.

The Verdict on MGM Stock

Let’s be clear. If the virus has a big second wave, all bets are off here. The economic reopening narrative absolutely has to hold for an investment in MGM to work out. With that disclaimer in mind, however, there’s a lot to like about the specific upside case with MGM in particular.

The company has great assets and a proven operations guy as the acting CEO. Additionally, MGM is still trading at a strongly discounted price even after the recent market rebound. This is a high risk, high reward speculation, so use prudence if you take a position. But the odds should favor the bold.

Ian Bezek has written more than 1,000 articles for and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek. At the time of this writing, he held no positions in any of the aforementioned securities.

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