MGM Resorts: Why The Odds Are Against This Casino

MGM is salivating to invade Springfield, Massachusetts.

MGM Resorts: Why The Odds Are Against This Casino

MGM Should Move To Reduce Debt

I believe MGM should move aggressively to reduce debt as soon as possible. MGM could reduce debt via a number of different maneuvers including a debt for equity swap, issuance of equity to buyback debt over time, or the sale of assets with the proceeds going to debt reduction. The current macro environment is favorable and MGM should take advantage of the times to make changes than can help the company survive future industry downturns.

Alternative Investment Ideas

While, as shown by the charts below, MGM currently trades at a discount to its peers based on price to book value and price to cash from operations, I do not believe long-term investors should consider MGM due to its debt load. Instead, investors looking to make a bet on the house should consider casino companies where the odds are actually in their favor. Both Las Vegas Sands and Wynn Resorts carry significantly lower debt loads than MGM and are thus, in my view, better long-term investments.

Conclusion

Despite having outperformed over the past year, I am not bullish on MGM. Odds are that business will not continue to be strong forever and a downturn will occur at some point over the next few years. MGM may or may not be able to ride out the next storm, but I do not want to own the stock to find out. Las Vegas Sands and Wynn Resorts are better positioned to ride out volatility in the casino business and are thus my preferred investments in the sector. Like any gambler going up against the odds, MGM can continue to be a winner over the short term, especially if Vegas continues to be strong, but I do not believe MGM works as a multi-year investment due to the company's debt load.