Folks are finally starting to socialize and spend their discretionary dollars, it seems. However, the reopening of the entertainment industry won’t happen all at once. Therefore, neutral to moderately bullish is the right outlook for investors to take on MGM Resorts (NYSE:MGM) and shares of MGM stock.
Even as lockdowns and shelter-in-place restrictions are being eased, we can’t expect the “new normal” to look like the pre-pandemic way of life. Social distancing will likely persist as a societal norm for a while. The high unemployment rate will also hinder people’s ability and willingness to gamble.
This all adds up to a recovery in MGM stock that’s neither quick nor steady. The share price will wobble and head-fakes should be expected. The execution of reopening plans might not go smoothly.
Hence, a patient, cautiously bullish stance is called for until there’s reason to believe otherwise.
Doors Open in Las Vegas
June 4 was a headline-grabbing day as Nevada Gov. Steve Sisolak finally reopened the state’s casinos. They had been closed since March 17, so the pent-up demand for entertainment was building for quite some time.
However, as we should expect, the casino business will look and feel very different as concerns about the novel coronavirus haven’t gone away. Though the reopening of Las Vegas’s casinos may be an exciting event, there are restrictions in place.
For example, Nevada’s casinos are only permitted to open at 50% capacity. Plus, limits are placed on the number of people these businesses allow inside of their casinos.
Along with these required changes, recommended guidelines for casinos include social distancing at slot machines and table games and frequent hand washing by casino staff. Also, hand sanitizer should be readily available to visitors.
So yes, the doors are open in Las Vegas’s casinos, but it’s not a complete return to normalcy. The MGM Grand in Las Vegas is currently open, but the “casino floors are open with strict protocols” and the casino’s poker room is closed.
Moderating Our Expectations
Despite Nevada’s limited reopening of its casinos, not everyone is super-bullish on MGM stock. In fact, one prominent Wall Street analyst appears to be advising extra caution even as the shares rebound from the bottom.
UBS analyst Robin Farley recently reiterated her “neutral” position on MGM stock in spite of the Las Vegas casino reopenings. On top of that, Farley reduced her price target on the shares from $35 to $18. That’s almost a halving of her price objective, a dramatic cut indeed.
This might seem a bit harsh, and investors don’t have to heed analysts’ warnings. That being said, it’s worth noting that the reopening of Vegas won’t necessarily translate to a swift, V-shaped recovery in the company’s stock price.
On the “plus” side of the pros-and-cons column, MGM Resorts did a decent job of minimizing capital outflow while Vegas was shut down.
During that interim, President and Acting CEO William Joseph Hornbuckle reported that the company had “$4.6 billion of cash on its balance sheet, excluding MGM China and MGP.” In addition, Hornbuckle said there was “an estimated domestic cash outflow of approximately $270 million per month while we are closed.”
In the “not-so-good” column is the fact that MGM Resorts is undergoing a transitional period due to the departure of CEO Jim Murren. Hornbuckle is the company’s interim chief executive, but the company lacks a firmly established leader. That could be a concern for MGM stockholders.
The Takeaway on MGM Stock
There are a lot of factors, both positive and negative, to consider when weighing MGM stock. Unfortunately, there’s no clear-cut answer to the question of how long the stock’s recovery will take.
Investors don’t have to be as cautious on MGM stock as Farley. Still, any position in the shares should be moderate. The potential for share-price appreciation is there. However, don’t count on an easy recovery for the stock or for the gambling market overall.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global. And, he hosts the popular financial YouTube channel Looking at the Markets. As of this writing, he did not hold a position in any of the aforementioned securities.