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James Li
James Li
Articles (1131)  | Author's Website |

MGM Gives Up Gains as Coronavirus Weighs on 2020 Guidance

Company reports 4th-quarter earnings below management expectations, CEO transition

February 12, 2020 | About:

Shares of MGM Resorts International (NYSE:MGM) traded over 2% lower in aftermarket trading on Wednesday on the back of reporting fourth-quarter 2019 earnings that missed management’s expectations despite announcing a CEO transition.

The Las Vegas-based casino operator reported diluted net earnings of $3.91 for the quarter ending December 2019, up from net loss of 6 cents per share for the quarter ending December 2018.

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Company reports earnings below management expectations, CEO transition

Outgoing CEO Jim Murren, who announced he is stepping down from his role prior to the expiration of his contract, said the results “were below [management’s] expectations,” driven primarily by lower-than-expected hold, weakness in Far East baccarat and certain one-time items.

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Murren discussed during the earnings call that Far East baccarat detracted from performance for Las Vegas Strip casino revenues, driven by lower demand from premium, high-end customers. Table games win declined 18%, contributing to a 4% decline in Strip casino revenues from the prior quarter. Murren added during the earnings call that while Far East baccarat has generated an over 5% contribution to adjusted Ebitda in past years, it generated just a 2% contribution this year.

Company lists headwinds for 2020, including coronavirus

MGM listed several headwinds for 2020, including the ongoing coronavirus outbreak in China. While the company is taking steps to ensure the safety of its guests, MGM’s Macau casinos remain closed, lowering revenue potential for MGM China.

Murren also mentioned on the call that due to the market-wide weakness in Far East baccarat and the uncertainty of the baccarat’s return to growth, the company is not releasing its 2020 financial targets at this time.

Stock gives up gains as headwinds outweigh CEO transition

Shares of MGM traded from an aftermarket high of $35.49, up approximately 5.5% from the closing price of $33.64, to around $32.90, down approximately 2.2% from the closing price on the back of listing headwinds that could impact short-term performance in 2020.

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GuruFocus ranks MGM’s profitability 5 out of 10: Although the company’s operating margin outperforms 60.47% of global competitors, its net margin and return on assets are underperforming over 66% of global travel and leisure companies.

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Gurus with holdings in MGM Resorts include Bill Nygren (Trades, Portfolio), Steven Cohen (Trades, Portfolio) and PRIMECAP Management (Trades, Portfolio).

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See also

Despite MGM’s late-market drop, competing casino operators like Wynn Resorts Ltd. (NASDAQ:WYNN) and Las Vegas Sands Corp. (NYSE:LVS) each increased more than 3.3% on a Bank of America Corp. (BAC) analyst upgrade driven by growth in coronavirus cases “leveling out,” according to CNBC sources.

Disclosure: No positions.

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About the author:

James Li
I am an editorial researcher at GuruFocus. I have a Master's in Finance from SMU, and I enjoy writing reports on financial trends and investor portfolios. Follow me on Twitter at @JamesLiGuru!

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