Casinos on the Las Vegas strip haven’t performed as well as I had previously expected. And while there are a number of reasons for the disappointment, I still believe that the casinos will generate enough revenue to keep their owners afloat until a vaccine for the novel coronavirus is ready. That’s why I continue to recommend that long-term investors buy MGM Resorts International (NYSE:MGM) stock.
To be sure, the spike in novel coronavirus cases in the Las Vegas area has caused a slight drop in visitor numbers lately, as JPMorgan analyst Joseph Greff advised clients on July 20.
The Las Vegas Review-Journal cited a gaming and hospitality consultant who believes that “travel restrictions in other states, quarantine mandates and limited air traffic could also hinder visitation rates.” Finally, a third travel analyst said that “a lack of meeting and convention business, limited traditional entertainment offerings and rising cases in neighboring states such as California and Arizona — two major sources for drive-in traffic — could also hurt numbers.”
July 18 saw about 350,000 visitors visit area casinos, according to estimates, down from 400,000 a week earlier and about 550,000 on July 4. Although traffic usually drops in the weeks following holiday weekends, the decline this year has been more substantial than expected.
More Time in Casinos
Visits to area casinos were down an estimated 44% on July 12 versus February, before it was announced that the pandemic had reached the U.S. The decline on July 12 compared with February was higher than the 38% drop seen during the previous week. But the figures suggest that MGM’s business is still generating a meaningful amount of revenue, boding well for the longer-term outlook of MGM stock.
Another positive sign for MGM is the fact that, according to one analyst, those visiting Las Vegas are spending more time in the city’s casinos during their stays. That suggests that the visitors are more prolific gamblers than those who are staying away from the city. And many operators plan to reopen their casinos on the Strip in coming weeks, suggesting that they expect the current trends to either continue or improve in the near-to-medium term.
Finally, in Q2, Las Vegas Sands’ (NYSE:LVS) revenue from the table games in its Las Vegas casinos came in at $99 million, d0wn from $514 million in Q2 of 2019. But its casinos were only open for one month of Q2 (June). That means its table games’ revenue came in at a quarterly run rate of about $300 million, or nearly 60% of the amount they generated in Q2 of 2019.
Good News Could be on the Horizon
There’s some evidence that the number of new daily cases of the coronavirus are plateauing or dropping in the hotspots of California, Arizona, Florida, Texas and Nevada. If that trend continues and intensifies, Americans are likely to become much less concerned about traveling to Las Vegas casinos in August and September. Moreover, the decline in cases could prompt the states that have imposed quarantines on those returning from certain regions of the U.S. to drop those quarantines.
And most importantly of all, there’s some hope that a vaccine could be ready by October or November.
Bottom Line on MGM Stock
The MGM stock price is still down more than 50% from its 52-week highs. Yet data indicates that the casino operator’s business has not collapsed, and there are some signs that help could be on the way soon in the form of easing coronavirus case increases.
More importantly, given the help from the Fed, the likely additional aid from Congress, and the significant revenue it’s currently generating, MGM will, in all probability, be able to stay afloat until a vaccine is ready. At that point, those who held onto MGM stock will realize a meaningful, market-beating profit.
Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been Roku, oil stocks and Snap. You can reach him on StockTwits at @larryramer. As of this writing, he did not own shares of any of the aforementioned stocks.