Published on: October 21, 2024, 03:58h.
Last updated on: October 21, 2024, 03:58h.
MGM Resorts International’s (NYSE: MGM) ongoing commitment to buying back its own shares has been well-noted on Wall Street.
These actions have not only led to a significant decrease in the casino giant’s total shares outstanding, but also to recognition. For instance, the gaming company was included in the latest version of the Goldman Sachs buyback basket – a group of stocks from companies dedicated to share repurchases that often outperforms the S&P 500.
Goldman predicts that the financial services and technology sectors are likely to contribute the most to S&P 500 buyback activity.
MGM Consumer Cyclical Buyback Leader
MGM, with a trailing 12-month buyback yield of 14%, is one of five consumer discretionary companies in the Goldman buyback basket and the only gaming entity. Other criteria include credit availability, earnings growth rates, interest rates, and valuation.
During the previous year, the Aria operator repurchased $2.3 billion of its own shares and announced a new $2 billion buyback program in November 2023. In the second quarter, the gaming company bought back $400 million worth of its shares, reducing its total outstanding shares by nearly 40% since 2021.
MGM’s share repurchases are significant to investors because they are more tax-efficient than dividends. The company’s buyback efforts have also influenced other casino operators to increase their own share repurchases.
MGM Buybacks Standout
According to Goldman’s Kostin, if interest rates do not decrease significantly, many companies might avoid buybacks because they previously funded this method of returning capital to shareholders by issuing debt at low interest rates.
MGM’s buyback strategy is appealing because the company has primarily funded its repurchases through its growing free cash flow, rather than by issuing bonds. With $2.4 billion in cash on hand by the end of the second quarter, MGM has the resources to continue reducing its share count significantly.
The Bellagio operator will release its third-quarter results on October 30, potentially providing an update on recent buyback activity and future plans.