MGM insiders bought $22.24 mil of stock. Activist Corvex management and 4 other officers and directors are betting MGM can weather casino shutdown.

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MGM Resorts International (MGM) stock has collapsed 72% over the last three months — losing about $13 billion of market value — as the Coronavirus pandemic forces a shutdown of the U.S casino industry. MGM’s 30 properties around the U.S.,including its trademark MGM Grand casino and the Bellagio in Las Vegas, sit vacant. It’s a nightmare for MGM employees, management and shareholders. But over the last two days, MGM insiders bought $22 million of stock, a significant cluster purchase which suggests that MGM can weather the Coronavirus storm, and that the stock may represent value.

Leading the buying was Keith Meister, CIO of activist hedge fund Corvex Management, who was Carl Icahn’s lieutenant until starting Corvex in 2011 with seed capital from George Soros. Meister bought 1.5 million shares of MGM on behalf of Corvex, spending $17.6 million at an average price of $11.74 over the last two days. According to WhaleWisdom, after the recent buying, Corvex’s average cost is approximately $26.76.

MGM closed Wednesday at $11.77.

Corvex now owns 22.44 million shares of MGM, or about 4.5% of the company. MGM is the $2.4 billion fund’s #1 portfolio holding.

Other MGM insiders who bought shares: Board Chairman Paul Salem purchased 340,000 shares at $11.54 on Monday. Salem increased his holdings of MGM by 43%. Three other MGM insiders, including President Bill Hornbuckle, also made purchases, bringing the total bought to over $22 million.

MGM insiders bought $22.24 mil over March 30 – 31.

Filing DateInsiderTitleTransactionTrade Date Shares Avg. Price Total Holdings %Chg
31-Mar-2020Gay Mary ChristineDirectorOpen Mkt Buy30-Mar-2020               1,550 12 $          18,606 8.75%
31-Mar-2020Hornbuckle WilliamPRESIDENT AND ACTING CEOOpen Mkt Buy31-Mar-2020             33,000 12.02 $        396,792 9.60%
31-Mar-2020Hornbuckle WilliamPRESIDENT AND ACTING CEOOpen Mkt Buy30-Mar-2020               8,300 12 $          99,592 2.48%
01-Apr-2020Meister KeithDirectorOpen Mkt Buy31-Mar-2020        1,000,000 11.94 $   11,939,100 4.66%
31-Mar-2020Meister KeithDirectorOpen Mkt Buy30-Mar-2020           500,000 11.33 $     5,663,800 2.39%
31-Mar-2020Salem Paul JDirectorOpen Mkt Buy30-Mar-2020           340,000 11.54 $     3,922,380 42.50%
31-Mar-2020Sanders Corey IanCHIEF FINANCIAL OFFICEROpen Mkt Buy31-Mar-2020               8,271 12.08 $          99,914 1.88%
31-Mar-2020Sanders Corey IanCHIEF FINANCIAL OFFICEROpen Mkt Buy30-Mar-2020             16,720 11.96 $        199,971 3.95%
01-Apr-2020Hornbuckle WilliamPRESIDENT AND ACTING CEOOpen Mkt Buy30-Mar-2020               8,500 11.76             99,960 2.26%

In March of 2009, a $37 million insider purchase of collapsed Las Vegas Sands stock by Sheldon Adelson marked the bottom for LVS.

The MGM insider buying amidst a financial crisis is reminiscent of the heroic buying of Las Vegas Sands (LVS) by casino billionaire Sheldon Adelson in late March of 2009. With global markets imploding, his company’s stock having collapsed by 98% over the previous year, Adelson bought a total of 12.56 million shares of LVS on the open market at an average price of $2.97 – an insider purchase totaling $37.39 million. While that amount may have been a drop-in-the-bucket compared to Adelson’s total wealth, the buying reasserted investor confidence in LVS, and marked the financial crisis bottom in the stock.

MGM has “incurred substantial operating losses in March” and doesn’t know how long its properties will be closed.

Prior to the Coronavirus black swan descending on the world, MGM was off to a strong start in the first two months of 2020, according to a press release last week. But then China closed MGM’s properties in Macau — the only place in China where gambling is legal — for two-weeks, causing adverse financial impacts. Then the contagion began to spread worldwide, ultimately resulting in the closure of MGM casino operations on March 16. Macau casinos have since reopened, though traffic remains light.

In a press release last week, MGM said it “has since incurred substantial operating losses in March and the Company does not expect to see a material improvement” because the severity of the pandemic and how long its properties will remain closed is unknown.

MGM looks to have sufficient liquidity to weather the Coronavirus storm

Bill Hornbuckle, acting CEO and President of MGM Resorts went on to say:

“While this will undoubtedly have a significant negative effect on our business in the near term, we are well-positioned to emerge from the current crisis in light of our strong liquidity position and valuable asset portfolio. With the continued execution of the MGM 2020 plan, as well as the implementation of aggressive cost savings initiatives, we believe the company will be able to manage its expenses while navigating this unprecedented event.”

According to the press release, 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.

Bank of America analyst Shaun Kelley recently issued buys on Casino stocks, and is most bullish on U.S. based stocks with Macau exposure, like MGM.

Two weeks ago, Bank of America analyst Shaun Kelley issued buy ratings for a list of U.S.-based casino operators, including MGM. He lowered the company’s price target to $14 from $35.

Kelley said part of his reasoning for issuing buy ratings on the casino stocks is due to COVID-19 stabilization in China. The BoA analyst says he’s most bullish regarding US-based casino stocks that have exposure in Macau – MGM, Sands, and Wynn. Macau casinos have reopened, but traffic remains light.

You can follow insider buying at the SEC’s Edgar website or at sites like WhaleWisdom.com.

Contact Mark about investing based on SEC filings and smart money disclosures.

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