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MGM Resorts (MGM) Up 48% in 3 Months: Will the Rally Continue?

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Casino stocks had been affected severely by the coronavirus pandemic. However, shares of MGM Resorts International (MGM - Free Report) have done reasonably well in the past three months, surging 47.5%, compared with the industry’s rally of 26.2%. Despite the pandemic, the company is confident regarding prospects in Macau and will continue to invest in the same. However, low visitation woes stay. Let’s analyze further.

Key Factors Driving Growth

MGM Resorts generates significant portion of its revenues from Macau — the largest gaming destination in the world. Although the company’s revenues from the Macau region have been severely impacted by the coronavirus pandemic, it is confident about the turnaround. The company will continue to invest in Macau. It announced that the market will bounce back quickly after the Visa scheme and other restrictions are lifted.

Sports betting and iGaming continue to drive growth following the legalization of sports betting outside Nevada. The company remains focused on sports betting expansion. Recently, BetMGM and GVC Holdings announced a second round of investment. This brings the total investment to $450 million. In the first round, both the companies had invested $200 million. Ever since its launch in 2018, the company has done extremely well and is on track to operate in 11 states by the end of 2020. Notably, BetMGM continues to gain market share. In September, sports betting and iGaming market share were approximately 18% in the states in which it operates. The company has also unveiled a streamlined betting experience on Yahoo Sports.

MGM Resorts and GVC Holdings’ joint venture, Roar Digital’s sports betting brand, BetMGM and The Denver Broncos recently entered into a multi-year agreement. Per the deal, BetMGM and MGM Resorts will become an official sports betting partner of the Broncos. However, the financial terms of the deal has been kept under wraps.

MGM Resorts has enough liquidity, which will help it survive in a zero revenue scenario. The company ended the third quarter with cash and cash equivalents of $4,493.9 million as of Sep 30, 2020 compared with $4,835.5 million on Jun 30, 2020. The company’s cash burn has also declined owing to the reopening of properties. The company has enough cash to survive the coronavirus pandemic. Although the company’s long-term debt at the end of quarter stands at $11,414.7 million, compared with $11,339.6 million as of Jun 30, 2020, it has no debt maturing prior to 2022, excluding MGP and MGM China. At the end of third-quarter 2020, the company had debt-to-capital ratio of 0.3, this gives an indication that its debt level is manageable.

 

Concerns

Dismal top and bottom-lines performance remain a concern. The company reported adjusted loss per share of $1.08, against adjusted earnings per share of 31 cents in the prior-year quarter. Total revenues were $1,125.9 million, which missed the Zacks Consensus Estimate of $1,219 million. Moreover, the top line declined 66% year over year. The downside can primarily be attributed to the temporary closure of certain domestic properties during the quarter, and other restrictions in Macau and domestic market due to the coronavirus pandemic.

Although casinos in Macau properties are now open, the company is witnessing low visitation. Despite occupancy improving sequentially every month, it is still below the pre-pandemic level.

Let’s take a look at the estimate revision in an order to get a clear picture what analysts are thinking about the company. In the past 60 days, loss estimate has widened to $2.27 from $1.87.

MGM Resorts, which shares space with Wynn Resorts, Limited (WYNN - Free Report) , Las Vegas Sands Corp. (LVS - Free Report) and Boyd Gaming Corporation (BYD - Free Report) , carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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