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.
XMGM 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. As a result, China's recent crackdown on Macau casinos has had a bigger impact on MGM's rivals.
China Reveals New Macau Rules
Nevertheless, China's recent clarification of casino rules in Macau came as welcome news to MGM and other casino stocks. China plans to issue six casino licenses, or concessions. In the past it had issued three licenses and three sub-concessions. MGM held a sub-concession. Now it will be able to apply for its own license. The concessions will be valid for 10 years instead of 20 years. But holders can ask for an extension to 13 years.
Meanwhile, on June 1, Nevada casinos began reopening at 100% capacity. However, Nevada has once again instituted a mask mandate for indoor spaces, including Vegas casinos, due to the rapid spread of Covid's omicron variant.
Super Bowl Betting Projections
Meanwhile, bettors across the country are expected to place $1 billion in wagers on Super Bowl LVI, which will be played on Feb. 13, according to PlayUSA, which provides news and analysis of the U.S. gaming industry. If sportsbooks reach those estimates, it would roughly double last year's estimated Super Bowl handle of more than $500 million.
"$1 billion in legal wagering on a single game would be an impressive milestone for the industry," said Dustin Gouker, lead analyst for PlayUSA.com. "It would have seemed impossible just a few years ago to reach such heights, but with the expansion of sports betting over the last year it is inevitable that legal wagering will soar."
The Super Bowl is the most-wagered-on single sporting event in the U.S.
MGM To Sell Mirage, Exploring Japan Casino
In its Q3 presentation after reporting earnings on Nov. 3, CEO Hornbuckle said MGM had begun the process to cell The Mirage, ending its 21-year ownership of the Las Vegas Strip iconic property. No buyer has been announced. MGM management did not reveal a price either.
MGM Resorts Buys Cosmopolitan
While it's planning to sell The Mirage, MGM is still invested heavily in Las Vegas. On Sept. 27, MGM Resorts reported it had signed a deal to buy The Cosmopolitan of Las Vegas for $1.6 billion from Blackstone. The transaction separates ownership of the property from the hotel and casino operations, which are being sold to MGM Resorts.
Following the close of the deal, MGM Resorts will enter into a 30-year lease agreement, with three 10-year renewal options, with a partnership that includes the Blackstone Real Estate Income Trust, which will acquire The Cosmopolitan's real estate assets.
Before the pandemic, in the trailing 12 months ended Feb. 29, 2020, The Cosmopolitan generated $959 million of net revenue and $316 million of adjusted earnings. In the second quarter ended June 30, 2021, the property generated $234 million of net revenue and $92 million of adjusted earnings.
MGM Resorts To Buy Aria, Vdara Owner
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.
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 Jan. 19, 2022, management said in a BetMGM business update that it's on track to rake in $1.3 billion net revenue in fiscal 2022, up from its last estimate of $1 billion in April 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.
Entain An M&A Target
MGM 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.
On Sept. 21, online gambling specialist DraftKings made a $20 billion takeover proposal to buy Entain. It sweetened the deal to $22.4 billion the following day. But on Oct. 26 DraftKings scrapped its offer.
It appears Entain and BetMGM are instead solidifying their investment in BetMGM. The two entities said in the Jan. 19, 2022, business update that they are pouring another $450 million into the joint venture in fiscal 2022. That brings their total investment to $1.1 billion since launch in 2018.
BetMGM Market Share Falls
Morgan Stanley analyst Thomas Allen said in a note to clients on Nov. 23 that BetMGM is clearly a top iGaming and sports-betting operator.
"However, share has started to fall, and we see risk if this continues from increased competition with (Caesars Entertainment) spending heavily (and helped by a 60 million-plus legacy database vs. MGM's 37 million) and PENN (24 million database) entering new states," he added.
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.
BetMGM includes more than 100 gaming kiosks across MGM's Las Vegas properties. BetMGM now operates in 19 states and the District of Columbia. It is poised to go live in New York soon.
New York State OKs Sports Betting
Meanwhile, New York state now allows online sports betting. BetMGM was among the nine operators selected on Nov. 9.
The operators include including DraftKings (DKNG) and FanDuel as well. The others are: BallyBet, Caesars Entertainment (CZR), Rush Street Interactive, Wynn Interactive, Resorts World and PointsBet. Penn National Gaming (PENN) was excluded.
On Jan. 8, the first group of operators, which included Caesars Sportsbook, DraftKings, FanDuel and Rush Street, launched online sports betting in the Empire State. BetMGM is among the second group of five other operators that is conditionally approved, including Bally's (BALY). They are still in the process of getting final regulatory approval.
BetMGM Eyes Canadian Market
MGM management said 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. Moreover, BetMGM has a lot of work to do to catch up to online gambling specialist DraftKings.
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.
BetMGM Partnerships
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 multiyear partnership, BetMGM and The Hockey News' journalists will collaborate on print and video content from a betting perspective.
On Feb. 3, MGM and BetMGM announced a multiyear extension of its partnership with the NHL, which began in 2018.
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.
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MGM Stock Technical Analysis
MGM stock is approaching a 51.27 buy point from a long consolidation, according to MarketSmith chart analysis. Shares are trading above their 50-day line.
MGM's relative strength line, which gauges performance vs. the S&P 500, spiked up recently, after going sideways for a couple of months. MGM stock has an RS Rating of 84 out of a best-possible 99.
With a Composite Rating of 78, MGM stock is ranked No. 8 in IBD's leisure-gaming/equipment industry group. The CR rating combines key fundamental and technical metrics in a single score.
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 December 2021, 1,221 funds owned MGM stock, accounting for around 43% of its ownership.
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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 reported Q3 2021 adjusted EPS of 3 cents on sales of $2.7 billion, both beating views.
Net revenue at Las Vegas Strip casinos and resorts soared 187% year over year to $1.4 billion.
Net revenue at regional casinos jumped 66% vs. the prior-year quarter to $925 million
MGM China net revenue popped 517% compared to the year-ago quarter to $289 million.
BetMGM posted a loss of $49,060.
"The completion of our asset light strategy will allow us to simplify our corporate structure and bolster our liquidity," CEO Bill Hornbuckle said in a statement.
FactSet analysts expected it to trim losses by 96% from the year-ago period to 4 cents a share. Sales were seen popping 117% to $2.44 billion.
Management said on Jan. 19, 2022, that fiscal 2021 BetMGM net revenue is expected to reach $850 million. BetMGM is expected to post a loss between $420 million and $440 million for the year. BetMGM isn't expected to become profitable until 2023.
MGM Resorts will report full Q4 and fiscal 2021 earnings on Feb. 9.
The IBD Stock Checkup shows MGM Resorts stock has an EPS Rating of 62. 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.
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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 more competitive.
Bottom line: MGM stock is not yet a buy as it's chasing a buy point of 51.27 from a long consolidation. With its Vegas properties reopened to 100% capacity and its online sports betting app gaining market share, investors should keep MGM Resorts stock on their radar. However, Covid's omicron variant has impeded the crucial return of convention visitors. 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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