How about that travel sector in 2020? Has it been a Wall Street see-saw? That’s putting it more than mildly, unless you mean lost at sea and sliced by a saw. Witness MGM Resorts International (NYSE:MGM). MGM stock has nearly tripled since cratering in mid-March at $7.70 per share and now trades at nearly $23. But stretch the time horizon back just three months and it’s down by more than a third this year.
So is the glass half empty? Half full? Or should it be traded in all together for a drinking vessel that’s pandemic safe? For you see, MGM faces the very same dilemma as every other travel and hospitality business. That is, can robust financials and sound management save the day when much of the sector has booked tickets to a most unpleasant travel destination: hell in a hand basket?
Let’s start this discussion at the most recent movement of MGM stock from a bottom created by the novel coronavirus pandemic. This will give us perspective on whether the company can survive, and even thrive, in the trying times of Covid-19.
Good Signs in Bad Times
As destination resorts companies go, MGM has proven an encouraging property over the last six months. It has somehow managed to scratch its way back and steadily increase its share price despite America’s ongoing troubles with Covid-19.
Yet Wall Street has viewed its financials through a lens worthy of a funhouse mirror. Analyst consensus forecasts a loss of $1.12 per share for the third-quarter earnings report, scheduled for Nov. 4. That would represent a disastrous year-over-year decline of 461.29% — and yet, Zacks describes such projected dismal performance as satisfying the desires of investors “hoping for strength.” Huh? As in, huh?
There’s a well-reasoned argument in favor of MGM stock. In writing about MGM as one of seven travel stocks to buy ahead of renewed tourism demand, my InvestorPlace colleague Joel Baglole asserts that “the travel industry will return. And when it does, expect it to return with a vengeance.” He’s got a firm grip on the stats, to be sure, citing how roughly one in four jobs lost in the U.S. this year has been in travel. Hopefully, there’s nowhere to go from there.
Still I contend that something dead or decimated cannot return with a vengeance, unless it is rebuilt from the ground up. Need proof? A recent survey by the University of Houston’s Hobby School of Public Affairs predicts that 90% of the music venues in Austin, Texas, a city legendary for its clubs, will close by Halloween — for good. So if you’re hoping to travel to there, Vegas or anywhere with vibrant nightlife, what exactly are you going to see and hear?
Pounded by the Pandemic
And for that matter, how will you get there or to any of MGM’s properties?
Airplanes must be redesigned from the ground up, a feat that by metaphor amounts to building the plane as you’re flying it — with plastic shields in between seats and super-strength air circulation systems. (Note: At least this will wipe out that other virus in the seat next to you, known as the Can’t-Stop-Talking-To-You-Stranger.)
Cruise ships? That’s where Covid-19 exploded in the first place and why the New York Post recently ridiculed the vessels as “the floating petri dishes of the high seas.” Shares in Carnival (NYSE:CCL) sank 78% between Feb. 18 and March 18. Rental car giant Hertz (NYSE:HTZ) is hobbling through Chapter 11 bankruptcy.
Meanwhile, businesses no longer have to worry about blowing their budget on Vegas junkets thanks to videoconferencing via Zoom Video Communications (NASDAQ:ZM), which has seen its stock surge more than 500% year-over-year. Now from making a fortune to saving one: Why would the thrifty CFOs of corporate America suddenly and permanently decide to toss out Zoom, reverse course on travel budgets and restore them entirely?
Las Vegas was the location of choice for many corporate conventions. And where is the MGM Grand located? To quote Vince Vaughn in “Swingers,” “Vegas, baby, Vegas!”
MGM Stock a Covid-19 Risk
I’ve said it before: Dr. Anthony Fauci is the expert investors should listen to over and above any stock pundit. He is predicting a very trying winter between Covid-19 and the next round of boring-old-flu (which, last I checked, also kills people). He’s also recently said that even with a vaccine, people will still have to take many of the same Covid-19 precautions they do now.
Whatever market optimism that surrounds gaming investments, MGM stock included, is based in large part on moving the pandemic goal posts. In March, we thought things would get better by summer; by early summer, maybe the fall. Now, 200,000 deaths later? Who knows?
Except that no one knows. By such non-financial yardsticks, any play on a gaming stock is dumb and dumber unless you’re in it for a buy-and-hold period to stretch years. In that case, buying the bottom could prove smart. Then again, where is the bottom for Covid-19? Until that peeks over the horizon, I’d place any wagers on MGM stock in a lockdown.
On the date of publication, Lou Carlozo did not have (either directly or indirectly) any positions in the securities mentioned in this article.