MGM Resorts International (NYSE:MGM) shares have dropped recently over concerns about slowing economic growth in the United States and the debt crisis in Europe. The stock has shaved about 30% off its recent highs and longer-term investors should view this as a buying opportunity for the following reasons:
1. MGM has agreed to partner with BWIN.Party (OTC:PYGMF) and Boyd Gaming (NYSE:BYD) in anticipation of the potential legalization of online poker in the United States. Online poker is a multi-billion dollar industry and with many states and the Federal Government looking for additional tax revenues, there is reason to believe that online gaming might be legalized in the future. This could lead to a new source of revenues for MGM, and it could create higher valuation metrics for the stock.
2. MGM is poised to benefit from the big drop in oil. Lower fuel costs leads to more disposable income for many consumers and makes everyone a little more likely to spend on vacations in places like Las Vegas. Many Los Angeles residents are more likely to drive to Las Vegas if gas is cheaper, and whether consumers fly or drive there, they are more likely to spend money during a trip if energy is not consuming such a large part of their monthly budget.
3. MGM has a high debt load but a few weeks ago S&P revised the outlook for MGM to "positive" based on reduced refinancing risks. Furthermore, MGM has about $1.3 billion in debt coming due in 2013 and there is a strong chance that the company will be able to refinance this debt at lower rates. This savings could go straight to the bottom line.
4. MGM shares are now trading at the low-end of the recent trading range and close to the 200-day moving average which is about $11.85. The 200-day moving average is often a strong support level and unless a highly negative economic event or company-specific event were to take place, the stock is not likely to break far below this trendline.
This company has multiple factors that could lead to additional growth and profit potential in the future, and with the stock down, but still near strong support levels, this might be one of the best buying opportunities for 2012.
Key Data Points For From Yahoo Finance:
Current price: $11.75
52-Week Range: $7.40 to $16.05
2012 Earnings Estimate: a loss of 47 cents per share
2013 Earnings Estimate: a loss of 21 cents per share
P/E Ratio: n/a due to ongoing losses
Data is sourced from Yahoo Finance. No guarantees or representations are made. Please consult a financial advisor before making investments.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.