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 $22.24 mil over March 30 – 31.
|Filing Date||Insider||Title||Transaction||Trade Date||Shares||Avg. Price||Total||Holdings %Chg|
|31-Mar-2020||Gay Mary Christine||Director||Open Mkt Buy||30-Mar-2020||1,550||12||$ 18,606||8.75%|
|31-Mar-2020||Hornbuckle William||PRESIDENT AND ACTING CEO||Open Mkt Buy||31-Mar-2020||33,000||12.02||$ 396,792||9.60%|
|31-Mar-2020||Hornbuckle William||PRESIDENT AND ACTING CEO||Open Mkt Buy||30-Mar-2020||8,300||12||$ 99,592||2.48%|
|01-Apr-2020||Meister Keith||Director||Open Mkt Buy||31-Mar-2020||1,000,000||11.94||$ 11,939,100||4.66%|
|31-Mar-2020||Meister Keith||Director||Open Mkt Buy||30-Mar-2020||500,000||11.33||$ 5,663,800||2.39%|
|31-Mar-2020||Salem Paul J||Director||Open Mkt Buy||30-Mar-2020||340,000||11.54||$ 3,922,380||42.50%|
|31-Mar-2020||Sanders Corey Ian||CHIEF FINANCIAL OFFICER||Open Mkt Buy||31-Mar-2020||8,271||12.08||$ 99,914||1.88%|
|31-Mar-2020||Sanders Corey Ian||CHIEF FINANCIAL OFFICER||Open Mkt Buy||30-Mar-2020||16,720||11.96||$ 199,971||3.95%|
|01-Apr-2020||Hornbuckle William||PRESIDENT AND ACTING CEO||Open Mkt Buy||30-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.
This investment blog (the “Blog”) is created and authored by Mark W. Gaffney (the “Content Creator”) and is published and provided for informational and entertainment purposes only (collectively, the “Blog Service”). The information in the Blog constitutes the Content Creator’s own opinions. None of the information contained in the Blog constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. You understand that the Content Creator is not advising, and will not advise you personally concerning the nature, potential, value or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. To the extent any of the information contained in the Blog may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person.
From time to time, the Content Creator or its affiliates may hold positions or other interests in securities mentioned in the Blog and may trade for their own account(s) based on the information presented. The Content Creator may also take positions inconsistent with the views expressed in its messages on the Blog.
The Content Creator may hold licenses with FINRA, the SEC or states securities authorities and these licenses may or may not be disclosed by the Content Creator in the Blog.
Investing in the investments discussed in the Blog may be risky and speculative. The companies may have limited operating histories, little available public information, and the stocks they issue may be volatile and illiquid. Trading in such securities can result in immediate and substantial losses of the capital invested. You should use invest risk capital, and not capital required for other purposes, such as retirement savings, student loans, mortgages or education.