MGM Resorts (MGM) Up 59% in 6 Months: Can the Rally Continue?
Shares of MGM Resorts International MGM have surged 58.6% in the past six months, compared with the industry’s rally of 38.6%. The company is benefiting from robust sports betting business and solid growth prospects in Macau. However, dismal visitation owing to the coronavirus pandemic remains a concern. Let’s delve deeper.
Factors Driving Growth
Sports betting and iGaming continue to be major growth drivers following the legalization of sports betting outside Nevada. The company continues to focus on sports betting expansion. Recently, BetMGM and GVC Holdings — announced second round of investment. This brings the total investment to $450 million. In the first round, both the companies have invested $200 million. Ever since its launch in 2018, the company has done extremely well and is now operating in 12 states. BetMGM is likely to operate in 20 states by 2021 and will have access of nearly 40% of the United Sates.
Notably, BetMGM continues to gain market share. In fourth-quarter 2020, BetMGM’s market share was 17% in retail and online markets. It registered 138,000 new customers between December and January. BetMGM delivered robust results in two of its newest markets, Colorado and Tennessee. In fourth-quarter 2020, BetMGM’s market share in Colorado and Tennessee were 31% and 34%, respectively. Moreover, the company and its new partner, Entain, anticipates new revenues related to BetMGM to increase well over 100% in 2021.
Despite the coronavirus pandemic, the company is confident regarding prospects in Macau and will continue to invest. The company informed that construction of the additional suites in the south tower of MGM Cotai is likely to be completed by mid-2021. Moreover, the opening of the world's longest sea-crossing bridge and tunnel in the prior year, which connects Macau to Hong Kong and mainland China's Pearl River Delta, is likely to prove beneficial for casino operators.
MGM Resorts has enough liquidity, which will help it survive in the current scenario. The company ended the fourth quarter with cash and cash equivalents of $5,101.6 million as of Dec 31, 2020 compared with $4,493.9 million on Sep 30, 2020. It has enough cash to survive the coronavirus pandemic. Although the company’s long-term debt at the end of quarter stands at $12,376.7 million, compared with $11,414.7 million as of Sep 30, 2020, it has no debt maturing prior to 2022, excluding MGP and MGM China. At the end of fourth-quarter 2020, the company had debt-to-capital ratio of 0.5, this gives an indication that its debt level is manageable.
Concerns
MGM Resorts reported fourth-quarter 2020 results, wherein both earnings and revenues declined sharply year over year. The downside was primarily due to the temporary closure of certain domestic properties during the quarter, and other restrictions in Macau and domestic market on account of the coronavirus pandemic. Moreover, travel restrictions impacted the company’s performance in the quarter under review.
The company’s financial numbers in 2021 are likely to bear the impact of the pandemic. Although casinos in Macau and Las Vegas properties are now open, the company is witnessing low visitation. Despite occupancy improving sequentially every month, it is still below the pre-pandemic level.
Zacks Rank & Key Picks
MGM Resorts, which shares space with Las Vegas Sands LVS, currently has a Zacks Rank #4 (Sell).
Some better-ranked stocks worth considering in the same space include Corsair Gaming, Inc. CRSR and Golden Entertainment, Inc. GDEN. Both the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Shares of Corsair Gaming have gained 141.5% in the past six months.
Golden Entertainment 2021 earnings are likely to witness growth of 93.9%.
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Las Vegas Sands Corp. (LVS) : Free Stock Analysis Report
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