MGM to Repurchase $2B Worth of its Own Stock

Posted on: March 2, 2022, 03:27h. 

Last updated on: March 2, 2022, 03:58h.

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

MGM Resorts International (NYSE:MGM) announced Wednesday that its board of directors approved a new $2 billion share repurchase plan.

MGM Buyback
MGM’s MGM Grand on the Las Vegas Strip. The company is buying back $2 billion of its stock. (Image: David Paul Morris/Bloomberg)

That marks one of the largest shareholder rewards programs in the gaming industry since the start of the coronavirus pandemic. The virus outbreak previously prompted casino operators to halt buyback efforts and cut or suspend dividends.

MGM has $524.6 million remaining under a $3 billion buyback plan announced in February 2020, and has bought back 60 million shares under that program. Last month, the gaming company said there was $636.7 million left on that effort, indicating it’s repurchased $112.1 million of its shares in about two weeks.

The company plans to utilize the remaining capacity under this repurchase plan prior to effecting any repurchases under the new $2.0 billion repurchase program,” the Mandalay Bay operator said in a statement.

Shares of MGM are higher by almost 1% in Wednesday’s after-hours session on news of the buyback. That after the stock jumped 4.32%  during the standard trading day.

MGM Buyback Signaling Value in Stock

Regardless of industry, investors often view buyback announcements as a sign the company authorizing the effort sees value in its shares.

A case can be made that MGM is offering some value today, as it’s down 2.56 year-to-date and resides 14.54% below its 52-week high. In the fourth quarter, MGM repurchased $727 million worth of its shares at an average price $42.42. The stock closed at $43.73 today.

“We remain committed to our capital allocation strategy and continue to believe that returning cash to shareholders is a highly productive use of our capital,” said CFO Jonathan Halkyard in the statement.

Management teams often embrace buybacks because there’s flexibility and tax benefits relative to dividends. For example, MGM doesn’t have to buy back all of the aforementioned $2 billion. It can repurchase as much or as little as it so desires. Conversely, companies that don’t live up to stated dividend obligations are often punished. Likewise, investors must pay taxes on dividends, but buybacks are tax-free to shareholders.

MGM Adds to Gaming Industry Buyback Binge

Broadly speaking, the gaming industry is proving slow to restore dividends cut and suspended in the wake of the COVID-19 crisis. But there’s growing momentum on the buyback front and MGM is adding to that.

Last month, Penn National Gaming (NASDAQ:PENN) revealed a $750 million buyback effort. Golden Entertainment (NASDAQ:GDEN) is widely expected to boost repurchases, too.

Last October, Boyd Gaming (NYSE:BYD) announced a $300 million buyback plan and that company recently reinstated and hiked its quarterly payout. Red Rock Resorts, Inc. (NASDAQ:RRR) repurchased more than $350 million of its stock in a Dutch auction late last year.