David McKee

Second-quarter results for MGM Resorts International are in and the company got hammered pretty badly. Las Vegas Strip revenues fell 90% to $151 million, regional operations dropped 90% to $89 million and Macao grossed a feeble $33 million, down 95%. “Expecting a long recovery” was JP Morgan analyst Joseph Greff‘s understated response. Noting that the Strip is “critical” to MGM and that “a market where state/nation-wide COVID-19 spikes have outsized impacts on its fundamentals (particularly on 4Q20 and 1Q21 conventions and tradeshows, which have recently been cancelled and/or delayed),” Greff pointed out that MGM’s regional operations likely do not possess the same increasingly favorable operating efficiencies that more core/middle market consumer regional casinos possess,” citing Boyd Gaming and Penn National Gaming as exemplars. He stuck with his $17/share price target, cheap as gaming stocks go.

Looking for a silver lining, Greff wrote, “The good news is that MGM over the past few years has recognized the underlying value of its hard assets/real estate and has monetized this to make meaningful improvement to its capital structure, resulting in low domestic net leverage, and importantly, a solid liquidity position. However, the only hard assets left, at least domestically, are its 50% stake in Aria/City Center and the relatively small MGM Springfield in Massachusetts.” Not much to draw upon. On the plus side, there’s $4.8 billion cash on hand. Less sanguine, there is also $11.4 billion in long-term debt. For Greff, the quarter was a write-off: “In Macau, operations were essentially halted for the full quarter, only recently receiving some positive news with the potential reissuance of visas to Macau. In Las Vegas, all casinos were closed in mid-March, with a handful reopening in early June — Bellagio, MGM Grand, and New York New York re-opened June 4^th, Excalibur on June 11^th, and Luxor on June 25^th.” Still, recovery is a 2022 proposition, with Las Vegas cash flow predicted to be 80% of last year’s and regional casinos back to 90% of 2019 levels. It’s not all bad: MGM figures it is saving $450 million in costs rendered moot by the pandemic-related shutdowns.