<p>MGM Resorts (NYSE: MGM) reports its first quarter results on April 30 after the markets closed. The company already released preliminary results on April 23, so it will not be too much to move MGM shares in any way.
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What investors want to hear from the company, however, is that things will get better and that the company has plenty of cash to cope with the slowdown both in Las Vegas, its other US operations and abroad in Macau.
Should I buy MGM before profit? I’m not sure there is anything the company can say at this point that will really hurt the stock. But like many of the companies that suffer from social distancing, business will not return to normal in many months.
What MGM investors should really pay attention to is the tone of acting CEO Bill Hornbuckle, who was promoted to the interim title of CEO in March after former CEO Jim Murren resigned to speed up the planned leadership transition.
The second quarter is probably worse than the first. Investors need to read between the lines during the conference call to see what level of enthusiasm it is to fight through the new corona virus.
In the meantime, here’s what we already know.
Operations were down in the first quarter
As I said at the top, MGM announced its preliminary Q1 2020 results on April 23, along with an economic impact assessment of its overall operations.
On the top line, MGM said net sales for the quarter fell 29% to $ 2.3 billion from a year earlier. During the first quarter of 2019, the company’s revenue increased by 13% to $ 3.2 billion, thanks to strong displays from both US regional operations and its locations in Macau, offset by flat revenues at Las Vegas casinos.
During the first quarter, revenues from MGM’s Las Vegas casinos and resorts fell by 21% to $ 1.1 billion. its regional operations reduced revenue by 10% to $ 726 million and MGM China (OTCMKTS: MCHVY) reduced its sales by 63% in the first quarter to $ 272 million due to Covid-19.
In Macau, the company’s properties reopened on February 20. Between the travel restrictions and the restrictions on the number of guests allowed to be at the gaming tables, the number of visits was still low throughout March.
This highlights why investors should expect US operations to witness similar inactivity when states begin resuming in early May. People will not want to jump back to normal immediately. Therefore, April will be a depreciation and May and June will be significantly down compared to the previous year.
In terms of end result, the company’s adjusted property profit before interest, taxes, depreciation and amortization (EBITDAR) was $ 295 million in the first quarter, 61% lower than in the first quarter of 2019. As China was in the teeth of the coronavirus in the first quarter, Macau’s properties had an adjusted EBITDAR loss of $ 22 million, compared to $ 193 million a year earlier.
During the first quarter, MGM’s regional operations in the United States and Las Vegas resorts saw adjusted property EBITDAR decrease by 28% and 34%, respectively. I would not be surprised if both lose money in the second quarter.
In fact, it is not so much if they lose money, but how much. Any guidance from management (doubtful) in this regard would be helpful.
MGM stock and second quarter
I will take a top in the top and bottom line during the second quarter for the company as a whole.
In the second quarter of last year, MGM had sales of $ 3.2 billion and adjusted the property’s EBITDA result to $ 887 million. Of this, Las Vegas accounted for 44% of revenue, Macau was good for 31% and its US regional operations decreased by the remaining 25%.
Remember that this is a very rough estimate of the potential reduction in revenue and revenue.
So if total revenue decreased by 29% during the first quarter, I will estimate that the second quarter will decrease by 58%. Based on $ 3.2 million in Q2 2019 revenue, Q1 2020 sales can only be $ 1.3 billion.
In the end, I estimate that the company’s regional operations in Las Vegas and the United States will both have an adjusted EBITDA margin for the property during the second quarter of -8%, while MGM China would be the breakeven of 0%.
If I remove myself from a miracle, the company’s adjusted property EBITDA for the second quarter of 2020 would be $ 138 million and a margin of -10.6%.
As I said earlier, the second quarter will be much worse than the first.
The conclusion at MGM
I recently said that if I had to bet $ 1000 on either MGM shares or Penn National Gaming (NASDAQ: PENN), I would choose the former because it only trades at about four times EBITDA compared to 12 times for Penn.
That said, if I were not forced to buy, I would take a pass on both of them given that the second quarter will hurt the entire casino industry.
Frankly, I could see both stocks during my teens sometime in June.
Will Ashworth has been writing about full-time investing since 2008. Publications where he has appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger and several others in both the United States and Canada. He especially likes to create model portfolios that pass the test of time. He lives in Halifax, Nova Scotia. At the time of writing, Will Ashworth had no position in any of the above securities.