MGM on Buyback Binge, Sees Cosmopolitan Buy Closing in Q2

Posted on: February 10, 2022, 08:11h. 

Last updated on: February 10, 2022, 01:16h.

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

MGM Resorts International (NYSE:MGM) reported fourth quarter results that blew past Wall Street estimates. That’s while noting it’s buying back a significant amount of its stock, and that a pair of marquee transactions are slated to close in the second quarter.

MGM
MGM Grand on the Las Vegas Strip, seen above. The company’s Las Vegas financial results are soaring, and it’s buying back massive amounts of stock. (Image: Wall Street Journal)

In the final three months of 2021, the Bellagio operator earned 12 cents a share on revenue of $3.06 billion. Analysts expected earnings per share of nine cents on sales of $2.76 billion.

On the Las Vegas Strip, where MGM is the largest operator, revenue was $1.8 billion, or 26 percent above the comparable period in 2019. Adjusted property earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR) were $699 million, or 84 percent higher than the October through December period in 2019.

Including Aria, MGM said fourth-quarter casino revenue surged 40 percent while noting the period was the first time since the start of the coronavirus pandemic the rated 65-and-over age demographic in Las Vegas returned to pre-crisis levels in terms of room nights.

While the emergence of the omicron variant is likely to weigh on casino operators’ first-quarter results, analysts are bullish on the outlook for MGM.

“We believe the company is positioned to see continued growth that we have seen over the last six-plus months as we head into Q2,” said Macquarie analyst Chad Beynon in a note to clients today. “Management guides to a ‘full normal’ in Las Vegas in Q2 2023.”

Beynon rates MGM “outperform,” and lifted his price target on the shares to $62 from $60, implying upside of 30 percent from the Feb. 9 close.

Busy Q2 Coming for MGM

The April through June time frame is shaping up to be an active one for the Mandalay Bay operator.

On a conference call with analysts, MGM CEO Bill Hornbuckle said the company expects to close the $1.6 billion acquisition of Cosmopolitan’s operating rights in the second quarter. That deal was announced last September. Additionally, VICI Properties (NYSE:VICI) is scheduled to wrap up its $17.2 billion purchase of MGM Growth Properties (NYSE:MGP) in the next quarter.

“On January 14, 2022, MGM Growth Properties LLC paid a dividend of $82 million, and the company (MGM) concurrently received a $58 million distribution,” according to a statement issued by MGM.

The casino operator is also getting a one-percent stake in a new operating percent partnership formed by VICI.

MGM also noted that its $1.075 billion sale of Mirage’s operating rights to Hard Rock International is slated to wrap up in the second half of this year.

MGM Buyback Bonanza

In the fourth quarter, MGM repurchased $727 million worth of its shares at an average price $42.42. That brings the operator’s total buyback to just over $2.1 billion, or 10.5 percent of its market capitalization, since last March, said CFO Jonathan Halkyard on the conference call.

We also love management’s approach to capital allocation. MGM’s real estate strategy, at its core, was designed to extract value from its owned real estate, and distribute it to the shareholders,” said Stifel analyst Steven Wieczynski in a note to clients. “Management has been beyond active here, repurchasing another $727M of stock during the quarter and has continued that rapid pace into 1Q22.”

Year-to-date, MGM already repurchased $370 million of its own shares.