Despite cyberattacks, analyst reiterates buy ratings for MGM and Caesars

September 14, 2023 9:40 PM
Photo: Shutterstock
  • Buck Wargo, CDC Gaming Reports
September 14, 2023 9:40 PM

A Wall Street analyst retained his buy ratings for MGM Resorts International and Caesars Entertainment even after both casino companies recently dealt with cyber attacks.

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In a note to investors Thursday titled “Risks in the Modern World; Not Likely Impacting Fundamentals,” David Katz with Jefferies Equities Research said the announcement by Caesars and indications from MGM confirming cyberattacks “should be taken as long-time, largely insurable events that should not have long-lasting impacts on the businesses, assuming that the event is short-lived.”

MGM’s cybersecurity issues began Sunday evening, when much of the resort’s technology shut down or shut off from the network.

Caesars reportedly paid a ransom to hackers after its system was infiltrated in late August. The data, which would have been leaked upon non-payment, included Social Security numbers and driver’s licenses.

“Our sense is that MGM’s impact could potentially be material, but moderate near term, while Caesars should see no meaningful impact,” Katz said. “The question of whether any business is displaced among operators near term is fair.”

Katz cited MGM’s announcement of an investigation into the cybersecurity attack affecting several components of its business. The company notified law enforcement and has employed external cybersecurity experts as they attempt to curtail the issue, which is ongoing as of this writing.

“On Thursday, Caesars released a statement confirming its business was also impacted by the same cybersecurity attack,” Katz wrote. “However, according to several unconfirmed press reports, Caesars paid about $15 million ransom to prevent further disruptions. The company has not specifically commented on this.”

Caesars admitted that an internal investigation on Sept. 7 determined that unauthorized individuals gained access to the loyalty-program database, which contained the sensitive information. Caesars has indicated that this attack has not impacted physical properties or online-gaming segments.

“Things are not always as they appear, but impactful nonetheless,” Katz said. “Our impression is the Street’s presumption that Caesars elected to pay a ransom, while MGM did not, may not be correct, according to our discussions with both management teams. Nonetheless, given what we expect should be predominantly insurable events for all concerned should mitigate the impact to MGM if it turns out to be significant. For the time being, it is not clear what the magnitude of the impact is to MGM and the degree of insurance coverage it will have or the duration of the event.”

Katz said Jefferies’s impression of the impact to MGM is that business remains operable and credit-card use is possible, albeit manual, while more transactions are cash-based than usual.

“We would expect, however, that group and transient business in the near term could be impacted by about 10% to 20% for the days that the current conditions exist,” Katz said. “According to our current estimates, MGM generates $42 million and $8 million of revenue and EBITDA per day company-wide, respectively. Again, we expect this impact is one-time and insurable, so would have little impact on value over time.”

MGM’s stock price opened the week at $44.21 and sat at $41.58 at the end of Thursday, a decline of about 6%. Caesars closed at $53.27 on Thursday, flat from its close on Monday.