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Why Hard-Hit MGM Stock Has Bounced Back a Bit

By Dave Kovaleski - Mar 26, 2020 at 1:48PM

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The hotelier has been forced to close all of its U.S. casinos but is making moves to deal with the unprecedented changes.

The impact of the coronavirus crisis over the past two months on the hotel industry has been well documented as occupancy rates have plummeted and hotels have had to furlough workers and temporarily close locations.

The American Hotel and Lodging Association (AHLA) spelled out the grim facts last week. Based on current occupancy (which is below 20% in many major cities) and near-term occupancy estimates, AHLA says 4 million jobs either have been or will be lost in the next few weeks.

MGM Resorts International (MGM -2.78%) has been hit as hard as any, announcing on March 16 that it was temporarily closing all of its casino resorts in the U.S., including its properties in Las Vegas; Detroit; Mississippi; Springfield, Massachusetts; and National Harbor, Maryland, among others. The company's stock price plunged 34% on the news on March 16.

But over the last five days through March 24, the stock price has bounced back about 23%. Here's why.

An image of a card table at a casino with a deck of cards fanned out and chips on the table.

Image source: Getty Images.

Ample liquidity

On March 12, the company announced that it had canceled its planned $1.25 billion stock buyback program due to market volatility.

"As a result of the unforeseen and unprecedented volatility in the financial markets due to coronavirus, and the resulting impact on our ability to determine and maintain an offering price range, we have decided to terminate the tender offer," Jim Murren, then-chairman and CEO of MGM Resorts, said.

Murren said the company has ample liquidity to weather the coronavirus storm.

"Our recently closed real estate transactions, as well as the contemplated $1.4 billion redemption of operating partnership units, will provide us with approximately $8.2 billion of net cash proceeds, allowing us to achieve our strongest balance sheet in the last decade and one of the strongest in our industry," Murren said.

MGM had $2.4 billion of cash and investments, excluding MGM China Holdings Limited and MGM Growth Properties, as of March 11. Plus, it has a $1.5 billion in revolving credit, giving it about $3.9 billion of liquidity.

That may have put the market at ease some following the temporary closures. In addition, insiders, including executives and board members, bought shares over the last few days, buoying the stock price. 

Changes at the top

On Sunday, March 22, MGM brought on a new CEO, Bill Hornbuckle, who has been with the company since 1998, most recently as president and chief operating officer. Hornbuckle will serve as acting CEO, replacing Jim Murren, who was appointed by Nevada Gov. Steve Sisolak to lead the state's COVID-19 response task force. Murren had announced in February that he was stepping down but would stay on until a replacement was named. Paul Salem, who is currently on the board, was tapped to replace Murren as board chairman.

The continuity during this time of great uncertainty for the industry and the economy appears to be a good move.

In his first major action Monday, Hornbuckle announced that MGM has created a $1 million emergency fund to help its employees through this crisis. "As we confront extraordinary events and an unprecedented global pandemic crisis, we know that this is an extremely challenging and uncertain time for many of our employees, their families, friends and neighbors and we are committed to help those in need," Hornbuckle said. MGM employs about 83,000 people around the world.

The company also donated 400,000 meals to food banks around the country in the past week.

MGM officials, as well as the other leaders from the hotel industry, met with Trump administration officials last week seeking federal relief from the coronavirus crisis. Congress has been working with Trump administration officials this week on a plan that hoteliers hope will provide some relief for the industry.

These are difficult times for MGM and the industry. MGM's stock price has plummeted over 60% this year and is down to $12 per share. MGM looks well-positioned to get through it though, and it should be a market leader once again when it gets to the other side. 

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