How MGM’s Commitment to Share Buybacks Influences Casino Operators: An Overview

MGM Resorts International (NYSE: MGM) is renowned on Wall Street for its long-standing strategy of share buybacks, a move that distinguishes it from many other casino operators in the industry. This financial hallmark has led to a meaningful decrease in the companys number of outstanding shares, garnering significant appreciation from both investors and analysts who monitor the capital allocation tactics of major gaming entities.

The latest testament to MGM’s commitment to share buybacks is its inclusion in Goldman Sachs’ buyback basket. This basket features stocks of companies that consistently engage in share repurchase programs, many of which frequently outperform the S&P 500 index.

Despite a 13% decline in share buyback activity among S&P 500 firms last year due to high interest rates and the introduction of a 1% tax on buybacks, Goldman Sachs projects a rebound: they estimate a 13% increase in buyback activities this year and a sizeable 15% increase in 2025. David J. Kostin, chief US equity strategist at Goldman, noted, “Relative to 2024, a modest decline in valuations along with a normalized lending environment should support a rebound in buyback growth. However, sustained interest rates might limit the extent of debt-funded buybacks.”

MGM: A Leader in Consumer Cyclical Buybacks

With a trailing twelve-month buyback yield of 14%, MGM is one of only five consumer discretionary companies in Goldman Sachs’ buyback basket and stands as the singular gaming representative. The metrics defining this placement include credit availability, earnings growth rates, current interest rates, and market valuation.

In 2022, MGM executed a striking buyback program, repurchasing $2.3 billion worth of its shares. Following that, a new initiative was launched in November 2023 for an additional $2 billion in buybacks. By the second quarter of this year, MGM managed to buy back $400 million in shares, which has significantly reduced its outstanding share count by nearly 40% since 2021.

This aggressive buyback strategy is vital for investors as it offers a tax-efficient alternative to dividends. Unlike some competitors, MGM has not reinstated its quarterly dividend, which was paused during the early COVID-19 period.

Driving the Competition

MGM’s proactive buyback strategy has also sparked similar actions among rival casino operators, intensifying competition in the market.

As pointed out by Goldman’s Kostin, sustained high interest rates may hinder many companies from pursuing buybacks, especially those that had previously funded such initiatives through low-interest debt. This context makes MGM’s buyback activities particularly intriguing, as the company has financed its repurchase efforts mainly through its increasing free cash flow, sparing it the need to accrue further debt.

By the end of the second quarter, MGM reported a healthy cash balance of $2.4 billion, demonstrating its capacity to maintain a robust share buyback rate.

The upcoming financial disclosures for the third quarter on October 30 could shed light on recent buyback activities and future intentions, further informing investors of MGM’s strategic maneuvers.

Conclusion

MGM Resorts’ commitment to share buybacks positions it as a formidable player within the gaming industry, combining strategic financial management with investor-focused growth. With ongoing repurchasing efforts backed by strong cash flow and the ability to thrive in a challenging economic landscape, MGM continues to set the standard in corporate governance around buybacks.