Shares of casino stock MGM Resorts (MGM -0.34%) dropped as much as 14.8% on Thursday after the company reported better-than-expected second-quarter 2024 financial results. Shares were still down 14.5% at 2:30 p.m. ET.
Good, but not good enough
Quarterly revenue rose from $3.94 billion a year ago to $4.33 billion, and net income fell from $200.8 million to $187.1 million on higher labor costs. But earnings per share were up $0.05 to $0.60 per share because of buybacks.
Analysts were expecting $4.21 billion in revenue and earnings of $0.59 per share, whereas the reported adjusted earnings per share were $0.86.
There's not much to argue with in the numbers, but two things seem to be sticking in investors' heads today. The first is comments about how the 2024 Formula 1 race in 2024 will be weaker than the inaugural race in 2023. Room rates exceeded $1,000 per night last year, and management said that wouldn't happen this time.
The other factor concerning investors is the investment and payoff from online gaming. BetMGM is not performing as well as hoped, and more capital may be needed in that business and/or MGM's own international online gaming operations.
Short-term story versus long-term reality
MGM Resorts is in a position where it's a strong cash generator in the gaming industry, and operations have been stable over the past year. But it's not growing much, and there seems to be some uncertainty about future performance.
The misgivings are valid, but the reality is that management has bought back 40% of the company's shares outstanding, including $400 million in buybacks in the second quarter, and it expects to grow cash flow by double digits over the next few years. This is a great value stock today, and eventually, the market will see that potential.
