At the bottom of the COVID-19 stock rout in March, MGM Resorts International (NYSE:MGM) traded at $7.14 a share. MGM stock opened June 16 at over $21.
If you bought at the bottom you’re sitting pretty. If you’re buying now, you may believe you have a bargain. MGM’s market cap remains below $10 billion, against 2019 revenue of almost $13 billion and net income of over $2 billion.
MGM has been announcing casino re-openings for several weeks. So far, so good. Four more Las Vegas casinos will be open by July.
That means MGM’s June quarter, to be reported July 30, should be the bottom, with revenue of $581 million expected.
Put It on Black
MGM is the second-largest casino operator after Las Vegas Sands (NYSE:LVS), but it’s more diversified and financially creative than its larger rival.
In a 2018 analysis, only 25% of MGM’s casino revenue came from Las Vegas. But half its overall revenue came from Vegas, thanks to its hotels, restaurants, and entertainment venues. The rest was split between Macau and “regional properties,” like Mississippi casinos that opened again this month.
MGM’s real estate is held by a separate company, MGM Growth Properties (NYSE:MGP), currently worth slightly more than MGM itself. MGM Growth is a friendly landlord, giving Resorts $700 million in liquidity during May through “operating partnership units.” This also gives investors another way to play MGM.
MGM management has also been lucky, not just good. In January, just before the virus hit, MGM sold its two biggest real estate properties, the MGM Grand and Mandalay Bay, to a joint venture of MGM Growth and a unit of Blackstone Group (NYSE:BK) for $4.6 billion.
All this means MGM is still cash rich. MGM Resorts had $6 billion in cash at the end of March.
Put It on Red
Despite its highly-publicized re-openings MGM remains a troubled company.
Just because a casino is open doesn’t mean it’s busy. Las Vegas authorities are offering happy talk since gaming and hospitality employ one-third of Nevada workers. The industry is hoping that “safety shields” which separate players from each other at tables and on slot machines will minimize risk.
Some workers remain unconvinced. It’s one thing to risk your life in a hospital or grocery store, another to risk it at a gaming table.
MGM’s Macau properties, the first of its operations to re-open, had just 10 tables open May 7, and 20 slot machines. Traffic at second-tier casinos seems to be coming back faster. Locals can gamble while travel restrictions keep many high rollers out.
MGM furloughed 63,000 workers when the virus hit. While it’s still paying health insurance through August, at least some layoffs are expected in September. Gaming experts warn that careful planning is necessary in reopening and this reduces the handle.
It’s for these reasons that UBS recently dropped its price target on MGM stock. Tipranks still has three bulls on MGM, one bear, and 11 sitting on the fence. Their average price target, however, is just $17.11, 20% below the June 16 opening price.
The Bottom Line on MGM Stock
MGM may be the most creative and best-run casino operator there is. Of all the gambling giants, it’s best equipped to handle a second shutdown. But that doesn’t mean you put all your money on black.
There’s another way to play, namely MGM Growth. Assuming the main company can make its rent payments, you have a yield of 6.5% coming. If there is a second shutdown, or gamblers fail to materialize, you still have the real estate. An MGM bankruptcy, for you, would just mean new stock players at your table.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.
