MGM Stock Slumps Post-Earnings, But MGP Stake, BetMGM Still Alluring


Posted on: February 11, 2021, 12:02h. 

Last updated on: February 11, 2021, 12:02h.

MGM Resorts International (NYSE:MGM) reported fourth-quarter results after the close of US markets Wednesday and in a subsequent conference call with analysts, the BetMGM unit and the operator’s plans for its equity in MGM Growth Properties (NYSE:MGP) took center stage.

MGM stock
The Bellagio Las Vegas. Operator MGM reported a fourth-quarter loss, but Wall Street is focusing on other topics. (Image: USA Today)

On the basis of generally accepted accounting principles (GAAP), the largest operator on the Las Vegas Strip lost 92 cents a share on revenue of $1.49 billion in the October through December period. Analysts expected a loss of 86 cents on sales of $1.59 billion. Those results sparked retrenchment in MGM stock with the shares lower by 3.69 percent in late trading.

While that’s a glum response following the report, some analysts see reasons for optimism with MGM, particularly for investors that wait out what are expected be lengthy recovery periods in Las Vegas and Macau.

Management provided additional nuggets around the Las Vegas recovery, highlighting that conventions/events appear to be relatively solid in the medium-term,” said Macquarie analyst Chad Beynon in a note to clients today. “Las Vegas margins could outperform given permanent cost-cutting initiatives.”

Beynon reiterates an “outperform” rating on MGM stock while boosting his price target to $42 from $38, implying upside of 20 percent from current levels.

Plans for MGP Investment

CEO Bill Hornbuckle and new CFO Jonathan Halkyard also discussed the gaming company’s plans for its remaining interest in real estate investment trust (REIT) MGM Growth Properties (NYSE:MGP).

MGP is the operator’s primary landlord and even with two $700 million sales of the real estate company’s equity last year, MGM still owns 53 percent. It’s a nice chip to have, particularly with the REIT yielding 5.93 percent and delivering hundreds of millions of dollars in dividends to the casino company. However, some analysts believe both companies would be better off with a less intimate relationship. Under that scenario, MGM benefits by raising more cash — it has close to $6 billion on the balance sheet — while MGP gains more independence.

Hornbuckle said the intent is to reduce MGM’s position in the REIT over time, if not eliminate the position entirely.

“It certainly is our goal over time to reduce our ownership stake in MGP. I think it would in some ways simplify our story and our corporate structure,” added Halkyard on the call. “So we certainly need to balance our moves with that, which is right now an appealing return on that investment. But the direction is certainly over time to reduce that.”

BetMGM, Of Course

With land-based operations in Sin City and Macau still sluggish because of the coronavirus pandemic, Wall Street and investors are focusing on iGaming and sports betting. MGM obliged with Hornbuckle noting the BetMGM unit is expected to be live in 20 states by the end of this year, providing access to 40 percent of the US population.

He said BetMGM’s market share is 17 percent in the states in which it’s operational — a figure that jumps to 19 percent when excluding Pennsylvania because the company was live there for just part of December. In Michigan, the online gaming entity registered 138,000 new customers in the first 10 days, posting gross gaming revenue (GGR) of $13 million.

Roth Capital analyst David Bain said BetMGM is outperforming expectations and he now assigns $7 a share in value to MGM stock from that unit.

Stifel analyst Steven Wieczynski says the online business could generate $500 million to $600 million in annual EBITDA by 2024, but he reminds investors BetMGM is a 50/50 joint venture with Entain Plc, meaning only half the economics accrue to MGM.