Thursday, February 13, 2020

MGM Resorts CEO Steps Down, 2020 Forecast Scrapped

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What’s happening: MGM Resorts reported disappointing earnings for its fourth quarter and withdrew its 2020 outlook. The casino giant also announced the departure of its long time CEO Jim Murren before the end of his contract.

What happened: Shares of MGM Resorts tumbled 4% after the company reported downbeat earnings for the fourth quarter. In a separate statement, MGM announced that its Chairman and CEO would be stepping down from both positions, after 22 years with the company and more than a decade of being at the helm. The news of Murren’s departure comes even as the hotel and entertainment company struggles due to the impact of the deadly coronavirus.

  • MGM swung to a profit of 8 cents per share, versus a loss of 3 cents per share in the same quarter in the previous year. Despite this, investors were disappointed, as it came drastically below the consensus estimate of 26 cents a share.
  • The company announced 4% growth in quarterly sales to $3.2 billion, matching analyst expectations.
  • Macau revenue rose 6% year-over-year to $727 million, missing the consensus estimates of $733 million.

Why it matters: MGM lifted its dividends by 15% and announced a $3 billion share repurchase program. This, however, failed to impress investors who focused on the wide earning miss.

There’s also widespread concern around MGM’s outlook, as the company’s Macau casinos have been closed since February 4 due to coronavirus fears. The company withdrew its 2020 outlook, citing uncertainties surrounding the spread and impact of the virus. Even with the casinos closed, the company continues to incur operating expenses of around $1.5 million a day at each of its casinos in Macau.

MGM Macau was already suffering due to political turmoil in Hong Kong and US-China trade tensions.

Profits from MGM’s Las Vegas casinos are also bearing the coronavirus outbreak, as fewer Asian baccarat players arrive in the US.

MGM Resorts did not mention the reason for its CEO’s untimely departure. Jim Murren said in a statement that he would serve in his role till a successor was chosen and that his departure would allow someone else to step in and lead the global casino operator through its next phase of growth, which could focus more on industries like sports.

How the shares responded: MGM’s shares remained highly volatile in the previous trading session. The stock jumped 7% following news of Murren’s resignation, only to give back all the gains and then some more, as investors absorbed news of the earnings miss and the withdrawal of its forecast for 2020.

What to watch: Macau, which has surpassed Vegas to become the world’s biggest gambling market, is facing huge uncertainty due to its proximity to the center of the coronavirus outbreak. Any news of the casinos here reopening will lead to positive market sentiment. Investors are also looking for MGM to announce its new CEO and hopes it is someone who can revive its casino business.

The Markets Today

     

Investors will be watching US stocks today, with all three major indices closing at record highs yet again.​

Context: US stocks closed higher again on Wednesday as investor concerns eased following what was considered a slowdown in coronavirus confirmed cases. However, today China reported a sharp rise in confirmed cases to reach almost 60,000.

Details: After closing at a record high on Tuesday, US indices continued their upward momentum of setting new records on Wednesday. Communication stocks delivered a strong performance.

The Dow, which was lifted by strong gains from Nike and UnitedHealth, led the rally. The index climbed 275 points to close at 29,551.42. Meanwhile, the S&P 500 rose 0.7% and the Nasdaq added 0.9% on Wednesday. Investor sentiment was also boosted by Fed Chair Jerome Powell’s testimony in front of the Senate.

Energy shares rallied on Wednesday, despite of the OPEC cutting its demand growth outlook. The EIA’s report of oil inventories also came in larger than expected.

In other news, yield on the US 10-year Treasury rose to 1.6299%, after reaching a low of 1.5% at the end of January. The US dollar continued this rise, with global investors preferring greenback-denominated assets.

Why it matters: The rally in stocks, driven by a slowdown in new coronavirus cases, could take a complete U-turn today. US stock futures are also pointing towards a lower open this morning. The downward movement in futures came in after China’s government reported a surge in new cases, although saying that this was due to a change in the method of counting infected patients. The total number of cases in Hubei Province climbed to around 50,000 using the new method. Futures on the Dow, S&P and Nasdaq 100 were all down more than 0.6%.

What to watch: The market will look at the major indices, with stock futures pointing towards a lower start. Investors will also keep a close eye on consumer prices and initial jobless claims reports, which are important indicators of economic growth.

Other Markets: Most European indices are trading lower on Thursday, with the FTSE 100, DAX 30, IBEX 35 and Stoxx 600 down 1%, 0.5%, 0.6% and 0.5%, respectively.

Support & Resistances
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Futures at 0400 (GMT)

News shaping
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What else to watch today

     

Natural gas stocks report, speeches from Dallas Fed President Robert Kaplan, Federal Reserve Bank of New York President John Williams and members of the Executive Board of the European Central Bank.