Bellagio Hotel in Las Vegas

MGM Surges Over 13% Amid IAC’s $1 Billion Stake

MGM Resorts International (MGM) shares rose 13.77% Monday after IAC/InterActiveCorp. (IAC) announced that it has taken a 12% stake in the  Las Vegas-based casino and resort operator worth about $1 billion.

IAC, an internet media company with over 150 brands, sees the investment in MGM as a “once in a decade opportunity” to grow its online gaming business with a preeminent brand. “What initially attracted us to MGM, besides its leadership in leisure, hospitality, and gaming, was an area that currently comprises a tiny portion of its revenue – online gaming,” IAC Chairman Barry Diller said in a statement, per MarketWatch.

Online gaming has increased in popularity in recent years due to the easing of state regulations and the takeup of E-Sports betting. According to IAC, the online gaming market represents a $450 billion global opportunity, with less than 10% penetration.

As of Aug. 11, 2020, MGM stock has a market value of $10.68 billion, yields 0.05%, and trades 34.47% lower on the year. However, the shares have recovered over 30% in the past three months as leisure travel began to slowly recommence.

Second-Quarter Earnings Beat Estimates

Although the owner of MGM Grand and Mandalay Bay reported a second-quarter loss of $1.52 per share, it was narrow than the $1.65 analysts had expected. Moreover, the company said that demand across its properties had been better than expected since they started reopening from early June.

Wall Street View

Analysts have taken the “wait and see” approach to MGM, especially after a second wave of COVID-19 infections swept across many states throughout late June and early July. The stock receives 13 ‘Hold’ ratings, 5 ‘Buy’ ratings, and 1 ‘Sell’ rating. Wall Street has a 12-month median price target on the shares at $18. This implies a 17% downside from Monday’s $21.65 close.

Technical Outlook and Trading Tactics

MGM shares gapped above the top trendline of a broad symmetrical triangle on heavy trading volume yesterday, indicating institutional buying interest behind the move. However, the stock may consolidate before attempting further gains, given the relative strength index (RSI) sits in overbought territory. If the stock closes above the 200-day simple moving average (SMA) and June peak in subsequent trading sessions, look for a possible test of the 2020 high at $34.38. Conversely, a reversal at these levels may see price revisit crucial support at $12.50.