MGM Could Be One of Biggest Share Repurchasers this Year, Says Goldman

MGM Resorts International (NYSE: MGM) has been a dedicated buyer of its own shares for several years and that trend is expected to hold this year, earning the gaming stock a place in the widely followed Goldman Sachs buyback basket.

The Bellagio operator is one of five consumer discretionary names in the basket and the only one from the casino gaming industry. Trailing 12-month yield buyback is one of the metrics used by Goldman Sachs to determine which stocks merit inclusion on the list and MGM checks that box at 18% — good for the second-highest percentage in the consumer cyclical space behind only General Motors (NYSE: GM).

Last year, share repurchase activity among S&P 500 member firms declined 13% due to high interest rates and a 1% tax on buybacks, but that form of shareholder reward is rebounding to start 2024.

However, rich valuations, a surge in interest rates, and the 1% excise tax on buybacks will likely weigh on buyback activity on the margin,” according to Goldman analysts.

Those factors imply MGM could be a buyback standout of sorts this year.

MGM Long-Running Commitment to Share Repurchases

MGM’s inclusion in the Goldman Sachs buyback basket is merited because, on a percentage basis, the company has been one of the most prolific buyers of its own stock among all S&P 500 member firms over the past several years.

When MGM delivered fourth-quarter results in February, CFO Jonathan Halkyard said in a press release that the gaming company already bought back $249 million of its shares on a year-to-date basis, extending its repurchase tally to $7.1 billion since 2021.

MGM’s buybacks are pertinent to investors because share repurchases are more tax-efficient than dividends, and unlike some rivals, the operator hasn’t restored its quarterly payout, which was cut during the early days of the COVID-19 crisis.

Room for Buybacks to Rebound

Goldman Sachs analyst David Kostin pointed out that in 2023, cash spending by S&P 500 companies rose 4% to $3.4 trillion even when accounting for the impact of the aforementioned 13% in buybacks. The increase was supported by a 10% rise in research and development spending, a 4% jump in dividends, and a 34% boost to mergers and acquisitions expenditures.

Some market observers are forecasting a rebound in buyback activity this year and there are signs casino operators beyond MGM could participate in that trend.

Specific to the Excalibur operator, the stock is also a member of the NASDAQ US BuyBack Achievers Index, which requires that holdings reduce shares outstanding counts by at least 5% over the trailing 12 months.