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Alan Farley
MGM

MGM Resorts International Inc. (MGM) has been hit hard by the COVID-19 pandemic, which temporarily shut down casino and hotel operations in Las Vegas and Macao. Those venues have since reopened but customers are staying away, worried about air travel and closed ventilation systems. Plunging revenue just forced to company to idle 18,000 workers, or about one-quarter of the total workforce. Wall Street took the bearish news in stride, lifting the stock to a 6-month high.

MGM Resorts Revenue Destruction

Macao just reported that August gross revenue fell more than 90% year-over-year, showing no improvement from July. The Nevada Gaming Board reported a 26.2% year-over-year decline in July ‘winnings’ at the same time, highlighting continued headwinds that are likely to persist well into 2021. Even so, Interactive Corp (IAC) took a 12% stake in MGM Resorts in August, viewing the depressed stock price as a buying opportunity.

MGM Chairman Paul Salem commented on the investment, noting “IAC’s family of brands and digital expertise are a great complement to the direction MGM Resorts has been taking both in leveraging our digital assets to enhance our guests’ experience and building a leading iGaming and sports betting business in BetMGM. We welcome IAC as a long-term strategic partner and intend to invite them to join our Board of Directors.”

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Wall Street And Technical Outlook

Wall Street consensus has deteriorated since the layoff news last week, with a ‘Hold’ rating based upon 3 ‘Buy’, 5 ‘Hold’, and 2 ‘Sell’ recommendations. Price targets currently range from a low of $13 to a street-high $27 while the stock is trading less than $4 under the high target in Thursday’s U.S. session. This is a dangerous placement that suggests the casino operator is now fully-valued, potentially triggering further downgrades.

MGM Resorts topped out in the upper 30s in 2018 and sold off into the lower 20s. It broke support in the first quarter of 2020 and bounced strongly, reversing near new resistance in June. The stock is still testing that level three-months later, carving a small cup and handle pattern on top of the 200-day moving average. Strong support pushing against strong resistance establishes a ‘rock and a hard place’ trade set-up, with equal odds for a breakout and breakdown.

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