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

Posted on: April 23, 2024, 12:33h. 

Last updated on: April 23, 2024, 01:07h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

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.

VICI S&P 500
MGM’s Excalibur on the Las Vegas Strip. The operator was included in the Goldman Sachs buyback basket. (Image: YouTube)

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.

In the third quarter of last year, the gaming company repurchased $572 million worth of its shares while announcing a new $2 billion buyback program when it delivered results for that period last November. The operator also said it repurchased $629 million of its stock during the fourth quarter, bringing the 2023 total to $2.3 billion.

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.