MGM Resorts stock (NYSE:MGM) has declined by almost 34% year-to-date, considerably underperforming the S&P 500, which remains down by about 21% over the same period. There are renewed worries about the travel and leisure sector, as the U.S. economy faces headwinds with inflation touching 41-year highs. This is causing the Federal Reserve to get more aggressive with its interest rate hikes, carrying out a 0.75 percentage point hike Wednesday, the largest since 1994, with more similar hikes on the horizon. The yield curve, which is also seen as a fairly reliable predictor of recessions, just inverted once again. Consumer confidence is also declining, as surging energy, grocery, and housing prices eat into household budgets, and this could impact companies that depend on discretionary spending.
However, MGM’s performance thus far has been solid in 2022 and there are indicators that the company will handle a downturn well. The company has been one of the big beneficiaries of the solid recovery of the gaming business in the Las Vegas market (which accounted for over 45% of MGM Resorts revenues pre-pandemic) and the broader U.S. gaming market as Covid-19-related concerns ease. Over Q1 2022, revenue from the Last Vegas and Regional operations rose by 15% versus 2019 levels, with the number more than doubling from 2021 levels. Moreover, unlike rivals who have been betting big on Macau operations, MGM has taken a more measured approach to the market, which has faced headwinds recently due to the resurgence of Covid cases in China and uncertainty surrounding the modalities of casino license extension. MGM derived less than 30% of its pre-pandemic revenue from Macau, versus peers Wynn Resorts and Las Vegas Sands who derived over 60% of sales from the region.
MGM has also been looking to streamline its operations, via acquisitions and divestitures. Last month, the company took over The Cosmopolitan of Las Vegas, a relatively high-end property, while recently agreeing to offload its Gold Strike Tunica in Mississippi. The company is also faring well in the growing online gambling and sports betting business, with its BetMGM offering, and is looking to double down on the international market, recently offering to acquire Sweden’s LeoVegas. The company has also been steadily reducing its debt, with just about $10.5 billion in long-term debt as of the last quarter, down from over $15 billion in 2018. Moreover, long-term debt is just about 3.5x the company’s 2019 adjusted EBITDA, which is very manageable. The company’s liquidity cushion also appears ample, with cash and cash equivalents standing at over $2.7 billion over the most recent quarter.
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We have a $47 per share valuation for MGM, which is almost 50% ahead of the current market price. See our analysis on MGM Resorts Valuation: Is MGM Stock Expensive Or Cheap? for more details on MGM’s valuation and how it compares with peers. For more information on MGM’s business model and revenue trends, check out our dashboard on MGM Resorts Revenue: How MGM Makes Money.
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 Month-to-date and year-to-date as of 6/16/2022
 Cumulative total returns since the end of 2016