MGM Resorts International (MGM) has soared from coronavirus crash lows as vaccines roll out with sports betting providing an extra boost. But is MGM stock a buy now? Take a look at MGM Resorts stock’s fundamentals and technicals to find out.
MGM Resorts is a global entertainment company with properties featuring hotels and casinos, conference spaces, restaurants, shops and live entertainment. The MGM portfolio includes 29 properties in the U.S. and Macau, including Bellagio, MGM Grand, Aria and Park MGM.
While MGM has casinos in Macau, most of its revenue is derived from U.S. operations. MGM owns half the casinos on the Vegas Strip as well as several properties in other states, including New Jersey, Maryland and Michigan. Rivals Las Vegas Sands (LVS) and Wynn Resorts (WYNN) have larger exposure to Macau, and as a result their revenue took a bigger hit.
On June 1, Nevada casinos began reopening at 100% capacity, with some of its larger conventions to kick off later in June. On May 18, JPMorgan analyst Joseph Greff upgraded the stock to overweight and lifted his price target to 47 from 45.
“We have increased confidence for a recovery in group business in September,” Greff wrote in the note to clients.
However, Nevada has once again instituted a mask mandate for indoor spaces, including Vegas casinos, due to the rapid spread of Covid’s delta variant.
As a result of the increased Covid risk, folks are also balking at attending conventions again. The Hollywood Reporter said Disney (DIS) announced it would pull out of a live event at CinemaCon and opt instead for a streamed presentation. The convention was slated to begin in Las Vegas on Aug.25 at Caesar’s Palace.
Meanwhile, China relaxed some travel restrictions for foreign visitors to Macau amid signs Covid infections are declining.
MGM Resort’s Plans For Japan Casino
On July 1, MGM Resorts said it had entered into a definitive agreement to purchase Infinity World Development Corp.’s 50% interest in CityCenter Holdings, for $2.125 billion. The agreement will make MGM Resorts the 100% owner of CityCenter on the Las Vegas Strip, which includes Aria Resort & Casino and Vdara Hotel & Spa. The deal is expected to close in Q3.
Once that deal is complete, MGM Resorts agreed to sell the real estate of CityCenter’s Aria and Vdara hotels for $3.89 billion in cash to Blackstone Group, the company said. Blackstone would lease the properties back to MGM for initial annual rent of $215 million.
On July 21, MGM Resorts and Orix Corp. submitted a proposal to build the first casino resort in Japan for $9 billion. It’s expected to open in the latter half of the 2020s, the Wall Street Journal reported.
MGM Eyes Growth With Online Sports Gambling
With the online gambling market slated to reach $127.3 billion by 2027, according to Grand View Research, the BetMGM sports gambling and iGaming app is a priority.
On April 21, management said BetMGM is on track to rake in $1 billion net revenue by 2022, up sharply from $178 million in 2020.
MGM Resorts launched BetMGM in New Jersey in 2019, with partner GVC Holdings (now Entain). In March 2020, BetMGM went live in Nevada and has continued rolling out elsewhere since then. The app boasts 160 million customer profiles.
The company is turning its focus to online sports betting. It solidified its partnership with Entain (GMVHY) with a second round of investment in BetMGM in July. MGM made an $11 billion takeover bid for Entain on Jan. 3. Entain rebuffed the all-cash offer, saying it significantly undervalued the company.
BetMGM’s 2020 operating losses were $62 million, which were split with its JV partner. Management doesn’t expect it to be in the black until 2023.
The app has about 18% market share, with 25% in New Jersey and about a third share in Tennessee and Colorado. The company expects it to be in 20 markets by the end of the year.
Most recently, it got the green light to operate in Arizona. BetMGM will be able to start registering customers for online and mobile betting on Aug. 28 start taking bets on Sept. 9, when legalized sports betting goes live in Arizona.
BetMGM also includes more than 100 gaming kiosks across MGM’s Las Vegas properties. BetMGM now operates in eight states. One of those states, Colorado, was among a handful of states that passed gambling laws in the last election cycle. BetMGM also operates in New Jersey, Nevada, Pennsylvania, Indiana, Tennessee, West Virginia and Iowa. It launched in Michigan on Jan. 22.
MGM Resorts is also reportedly considering buying betting behemoth Flutter Entertainment and mobile esports company Skillz, according to CTFN, which reports on mergers and acquisitions. Flutter Entertainment is an Irish bookmaking holding company created by the merger of Paddy Power and Betfair. Flutter operates Fanduel, the largest U.S. online sports betting business.
On June 2, hockey legend Wayne Gretzky signed a multiyear deal as brand ambassador for BetMGM.
“As we look toward potential expansion into Canada, and elsewhere throughout the United States, Wayne will bring a unique ability to tell our brand story,” said BetMGM’s chief revenue officer Matt Prevost.
On June 3, BetMGM announced it has been named the exclusive sports betting partner of The Hockey News. Under the multi-year partnership, BetMGM and The Hockey News’ journalists will collaborate on print and video content from a betting perspective.
On June 10, BetMGM teamed up with mixed martial arts promoter PFL (Professional Fighters League. PFL fans can now place bets on BetMGM during events televised on ESPN networks and streaming platforms.
New York State OKs Sports Betting
Meanwhile, New York state recently passed a law to allow online sports betting. The law authorizes New York’s State Gaming Commission hold a competitive bidding process to choose two platform providers. The commission has the option to choose more than two mobile sports wagering operators.
“We’re excited about the prospect of operating in New York,” said CEO Adam Greenblatt at an investor day event on April 21. “We are very well positioned to participate in that market because we are both a platform provider and operator.”
Greenblatt said BetMGM had Q1 2021 revenue of 163 million, 90% of full-year 2020 revenue and 430% above Q1 2020. First-quarter revenue gained 114% from Q4. Long-term EBITDA margins remain at 30-35%.
Management also said April 21 that it sees a total addressable market in North America of $28 billion, split 50-50 between online sports betting and iGaming. Canada represents a $4.4 billion market in which BetMGM expects to participate. Canada legalized sports betting on Aug. 27.
As more states allow online sports gambling, MGM stands to benefit, but so do its rivals such as Penn National Gaming (PENN), Caesars Entertainment (CZR) and Bally’s (BALY). Moreover, BetMGM has a lot of work to do to catch up to online gambling specialist DraftKings (DKNG).
Right now, FanDuel and DraftKings lead the online sports betting market. BetMGM competes with Penn’s Barstool and Caesars’ William Hill PLC for No. 3. MGM says BetMGM is currently among the top three in each of its markets.
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MGM Stock Technical Analysis
MGM stock has a buy point of 43.74 from a cup-with-handle base, according to MarketSmith chart analysis.
MGM’s relative strength line, which gauges performance vs. the S&P 500, is trending lower. MGM stock has an RS Rating of 82 out of a best-possible 99.
With a Composite Rating of 63, MGM stock is ranked No. 12 in IBD’s leisure-gaming/equipment industry group, which itself ranks No. 73 out of 197. The CR rating combines key fundamental and technical metrics in a single score.
Casino operators and other travel-related stocks have had a rough summer, but are trying to bounce back in recent days as investors bet that U.S. Covid cases are close to peaking. China lockdowns also could ease after stiff restrictions in many regions to snuff out outbreaks.
MGM stock is a component of the Roundhill Sports Betting & Gaming (BETZ) ETF, which holds dozens of gambling stocks. BETZ’s top holdings include Flutter Entertainment (which owns online sports gambling giant FanDuel), William Hill PLC, Penn National Gaming and DraftKings.
As of June 2021, 1,177 funds owned MGM stock, accounting for 40% of its ownership. The largest investors include Vanguard Group, with 8.4% ownership, and T. Rowe Price Associates, with 4.2%.
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MGM Earnings And Fundamental Analysis
MGM earnings got hammered in the first two quarters of 2020 when casinos closed. Sales cratered to $289 million in Q2 2020, a 91% drop. Losses mounted to $1.52 a share vs. a profit of 23 cents the year before. By Q3, MGM had begun to stop the bleeding, trimming losses to $1.08 a share. Revenue climbed to $1.1 billion, but still 66% below the prior year.
MGM posted a 13-cents-a-share loss in Q2 2021, vs. a $1.52-a-share loss in the year-ago quarter. Revenue surged 683%% to $2.27 billion.
The IBD Stock Checkup shows MGM Resorts stock has a dismal EPS Rating of 27. MGM Stock has an SMR Rating of D.
The EPS rating reflects a company’s health on fundamental earnings metrics, while the SMR Rating tracks sales, profit margins and return on equity. IBD research shows that companies that excel in the stock market tend to post big numbers in those areas.
As more people are vaccinated and casinos fully reopen, there is hope that visitors will eventually return to MGM’s Vegas casinos. However, key convention business probably won’t recover until the fall.
“We do not expect the market to meaningfully recover without the return of convention business,” Wolfe Research analyst Jared Shojaian wrote in a recent report.
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Is MGM Stock A Buy Now?
The bulk of MGM’s revenue still comes from its physical properties. Leisure visitors may return relatively quickly to the casinos as the pandemic wanes, but convention business is likely to remain weak well into 2021, if not 2022.
Meanwhile, MGM’s investments in online gaming platform BetMGM prove it’s serious about growing that segment. But rivals FanDuel and DraftKings remain comfortably in the lead. Others like Penn’s Barstool and Bally’s Bet.Works make the market ever-more competitive.
Bottom line: MGM stock is closing in on a buy point of 43.74 from a cup-with-handle base. As its Vegas properties reopen to 100% capacity and its online sports betting app continues to grab market share, investors should keep MGM Resorts stock on their radar. Look for a return to profitability once casinos have been reopened without restrictions for a while.
Follow Adelia Cellini Linecker on Twitter @IBD_Adelia.
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