We're infatuated with MGM Resorts (NYSE:MGM) as the recent sell-off creates an opportunity to buy the best in class gaming operator for the first time in a decade. If you've ever traveled to Las Vegas to game, or perhaps attend a convention, there's a 50% likelihood that you've stayed at one of MGM's numerous resorts along the Vegas strip.
We anticipate that the priced-in impact from COVID-19 seems exaggerated and the likelihood of insolvency is low. Not to mention, the deep value thesis we have on the company suggests that the stock is heavily undervalued relative to the replacement cost of the portfolio (using recent construction cost data), and the implied market value of the portfolio when based on recent lease-back and sale transactions.
The company's cash burn inclusive of OpEx reduction suggests -$2B assuming the worst-case scenario. We think there's room to maneuver and even if COVID-19 were to result in an extended closure, there's enough cash on the balance sheet to withstand the pandemic. When carefully weighing the value of the portfolio, we think MGM can be conservatively valued at $29 per share creating immense upside for those patient enough to wait out the pandemic's impact on the stock.
When Will Vegas Open for business?
MGM Resorts got roasted in the past couple of months with the announcement of layoffs, temporarily closed hotels, and of course… no gaming besides online gaming (which only applies to Nevada residents). Everyone loves Las Vegas, and with MGM's massive Vegas portfolio of various Vegas properties like MGM Grand, Mirage, Vdara, New York New York, and so forth… it's tantamount to buying a sizable chunk of the Vegas strip.
So, when investing into MGM you're basically investing into a concentrated Vegas portfolio when compared to peers with more diverse portfolios
