MGM Resorts International informed its staff that it would lay off 18,000 furloughed employees in the US as the casino operator grapples with the financial fallout resulting from the coronavirus-induced travel restrictions.
MGM (MGM) will start the streamlining measure on Monday, according to a letter from its CEO Bill Hornbuckle to employees and seen by Reuters. MGM has about 52,000 full-time and 18,000 part-time employees in the US as of Dec. 31.
“Federal law requires companies to provide a date of separation for furloughed employees who are not recalled within six months. Regrettably, August 31, marks (that) date,” Hornbuckle said in the letter.
Nonetheless shares rose 4.6% to $23.86 on Friday, as investors grew more confident that the move would help the company cut costs to overcome this period of uncertainty.
The step comes as many companies have decided to cut jobs as the US economy recorded its sharpest contraction in at least 73 years in the second quarter due to pandemic-led disruptions, with corporate profits tanking deeper. Last week, Coca-Cola (KO) announced that it would cut thousands of jobs as sales had slumped, while United Airlines confirmed it was preparing for the biggest pilot furloughs and will need to remove 2,850 pilots this year.
MGM was forced to close all of its casinos and furlough about 62,000 of its workforce in the US in March due to the lockdowns. It brought back tens of thousands of employees when many of its casinos opened for business as the restrictions eased, but it still had to leave out 18,000 of them, according to the report.
Hornbuckle said that employees who will be laid off will remain in the company’s recall list and if hired back by the end of 2021, they shall retain their seniority and benefits.
MGM shares have plunged 28% this year as the stay-at-home restrictions tied to the coronavirus pandemic have led to disruptions of its leisure and hospitality businesses. Looking ahead the $21.63 average price target indicates 9.4% downside potential in the shares over the coming year.
Earlier this month, IAC/Interactive announced that it had accumulated a 12% stake in MGM for an aggregate of $1 billion as the internet and media company seeks to enter the online gaming market.
Following IAC’s investment, Deutsche Bank analyst Carlo Santarelli maintained a Hold rating on the stock with a $13 price target (46% downside potential), saying that he expects MGM to now garner more attention given that the euphoria around sports and iCasino continue.
“While we don’t expect IAC to serve as the stock promotion vehicle we’ve seen elsewhere in the space, we do believe the investment puts MGM more firmly on the map for investors within the online gaming and sports betting environment,” Santarelli wrote in a note to investors. “While the deal does not improve the operating circumstances in Las Vegas or help the near to medium term free cash flow dynamics of the company, it does highlight that MGM does in fact intend to be a major player in the online environment.”
The rest of the Street has a cautiously optimistic outlook on the stock. The Moderate Buy analyst consensus breaks down into 4 Buys versus 5 Holds and 1 Sell. (See MGM stock analysis on TipRanks).
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