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MGM Q3 Results Zapped by Strip Weakness, Miss Estimates

MGM Resorts International (NYSE:MGM) reported third-quarter results Thursday that missed Wall Street estimates, confirming recovery on the Las Vegas Strip is a slow-moving process.

MGM’s Bellagio on the Strip, seen here. Las Vegas results improved in Q3, but there’s still work to be done. (Image: CNBC)

The Bellagio operator lost $1.08 a share on revenue of $1.13 billion during the July through September period. Analysts expected a per share loss of $1.06 on turnover of $1.30 billion. Adjusted property earnings before interest, taxes, depreciation and amortization (EBITDA) of -$48.8 million beats the consensus estimate of -$57 million.

We saw sequential improvements in all of our markets in the third quarter, and our regional properties have led the pace of recovery with several properties generating record operating performance,” said CEO Bill Hornbuckle on a conference call with analysts and investors.

Still grappling with the effects of the coronavirus pandemic, the Mirage operator posted third-quarter EBITDA of $15 million in its home market on revenue of $481 million. That’s up from a second-quarter EBITDA loss of $104 million on sales of $331 million.

The Strip, where it’s the largest operator, accounts for approximately half of MGM’s EBITDA.

All About Vegas

In a normal operating environment, MGM’s deep Strip exposure is a plus. But 2020 is anything but normal, and with a COVID-19 vaccine still months away, the gaming company remains vulnerable to sluggish business traffic and tourists’ reluctance to fly to destination markets.

“With no signs that the group/convention business will be recovering anytime soon, we would prefer to stay on the sidelines,” said Stifel analyst Steven Wieczynski in a note out late Thursday.

He rates MGM stock “hold,” with a $23 price target, implying modest upside from the Oct. 29 close of $21.29.

On the bright side, all of the company’s Strip venues are reopened and generated positive earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR) during September. Additionally, the pandemic forced gaming companies to reach for cost savings. That’s something MGM is executing in significant fashion, with executives saying the operator found $450 million in reductions, which it expects will remain permanent even as business gradually returns to normal.

Following a recent debt sale, MGM had $4.50 billion in domestic liquidity as of Sept. 30, excluding stakes in MGM China and MGM Growth Properties.

Not Focusing on M&A

While consolidation is brisk in the gaming industry these days and Strip venues are up for sale, presumably at lower prices than were available pre-pandemic, Hornbuckle said acquisitions aren’t a priority for the company today.

“And look, we’ll be opportunistic. We’re not overly focused on M&A, particularly here in Las Vegas,” he said. “We think we own enough of Las Vegas to be open about it. But there will be other opportunities that the market presents to us that we’ll have to take a sincere look at. But for now, we just love the safety and security of the liquidity.”

Hornbuckle noted that it’d be a positive if Las Vegas Sands (NYSE:LVS) disposes of its Nevada assets at the rumored $6 billion price point, particularly if a less-able competitor enters the market. But he added that MGM isn’t looking to buy those venues.

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