Investors should typically have a long-term mindset when buying a stock, which means thinking about where a stock will be in the next three, five, or 10 years. Yet the current environment necessitates investors adopting a more immediate outlook if only to ascertain whether a company will be able to make it through to the next year -- let alone survive the next decade.
With that in mind, let's see where MGM Resorts (NYSE:MGM) might be a year from now.
The China syndrome
There seems no reason to believe the global casino resort operator won't be around next May, and probably in May 2030, but that doesn't mean the next 12 months won't be rough going.
MGM's first-quarter earnings report showed a 29% decrease in revenue to $2.25 billion, which it blamed on the forced closures of its resorts here in the U.S. as well as in Macao.
While its China operations were hit first because that's where the pandemic originated, leading to a 63% decline in net revenue at MGM China, the situation hasn't improved since, even though casinos have been operating again since the middle of February.
As we've since learned, because travel restrictions remain in place to Macao, gaming revenue in April has all but evaporated, plunging 97% for the month compared to the year-ago period. But unlike Las Vegas Sands (NYSE:LVS) and Wynn Resorts (NASDAQ:WYNN), which derive most of their revenue from Macao, MGM only realizes about 12% from that area, though that's down sharply from the 23% the gambling enclave accounted for last year.
Las Vegas is MGM's prime source of revenue, representing half the total, and its properties on the Strip saw receipts fall 20% in the quarter. Yet as that occurred despite the closure orders only coming in the last few weeks of the quarter, the second quarter is likely to bear the brunt of the pandemic's impact.
A recovery delayed
Like Sands and Wynn, MGM is chomping at the bit to reopen its Vegas resorts and said once the Strip is cleared for business, it will reopen two or three of them, including the Bellagio and possibly New York-New York, though it operates eight properties in the city.
MGM also operates a number of regional properties around the country, and their return to action is also dependent upon state's giving them a clean bill of health. The problem is, regardless of where the casinos are located, business is not expected to be particularly brisk, certainly not in the first weeks of reopening, and maybe not for months or even a few quarters.
As was seen in Macao, which is the world's largest gambling market, placing bets has ranked far down on the list of priorities of consumers, and MGM is planning for that eventuality.
A regional malaise
The resort operator notified Massachusetts officials that by the end of August, it is planning on firing some 1,900 employees from its Springfield casino. Under the federal Worker Adjustment and Retraining Act, MGM employees who are furloughed until that time and haven't been rehired by then will be let go. MGM Springfield had a little more than 2,000 employees at the end of last year.
And that comes as CEO Bill Hornbuckle has suggested it will be regional casinos like Springfield or even Atlantic City's Borgata that will bounce back before the Las Vegas Strip because they depend more on state and local community support versus tourists flying in from around the country and the world.
Yet with travel likely to be in the tank for some time to come, the ability of MGM's Vegas resorts to recover quickly will be compromised, which means MGM Resorts as an investment will undoubtedly be weakened as well.
No dice with growth
Looking out a year from now indicates MGM may still be right where it is today. The casino operator has plenty of liquidity to make it through until tourism and travel resumes. And though MGM is still paying a dividend, it cut it to the bare minimum of just a penny per share to save $73 million a quarter.
There will come a time when MGM Resorts is a worthwhile investment, but that might not be for at least a year or more.