MGM has $200 million in cyber insurance, shares could recover, analysts say
MGM Resorts International (NYSE: MGM ) said Wednesday that operations at its U.S. casino hotels are returning to normal. This comes on the heels of a ransomware attack that began on September 10, and at least one sell-side analyst said the incident posed minimal financial risk to the company.
JMP Securities analyst Jordan Bender said in a recent note to clients that the research firm believes MGM has $200 million in cyber insurance that covers business interruption and payments to malicious actors. If true, Bellagio operators are unlikely to incur any significant costs as a result of the data breach.
If the breach is fully covered by the policy, MGM will bear minimal incidental costs and insurance premiums will increase.However, this is just a drop in the ocean for a company that generates $4.7 billion in cash flow [Stein] year,” Bender wrote.
That's consistent with recent comments from MGM rival Caesars Entertainment Inc. (NASDAQ: CZR ). Harrah's operators fell victim to a "Dispersed Spider" or UNC 3944 ransomware attack and reportedly paid between $15 million and $30 million to stop the attack. In a Form 8-K filed with the Securities and Exchange Commission (SEC) last week, Caesars said the payment was covered by cyber insurance.
MGM can bear short-term costs
It is estimated that MGM may have lost up to $84 million in sales due to the ongoing data breach that began on September 10.
That’s in addition to an estimated $1 million a day in lost cash flow and possible reputational damage. Bender noted in the report that JMP predicts the cyber ransom payment by MGM could be between $30 million and $50 million. This will most likely be covered by insurance.
Cosmopolitan operators have not publicly used the term "ransomware". However, if payments are made to the perpetrators, the SEC requires MGM to disclose those fees to investors, and the disclosure must be made within four business days. For now, MGM's top priority is ensuring operations return to normal, although there may be some hiccups along the way.
"We do not know a timetable for when operations will return to normal. But our review indicates that MGM is still grappling with day-to-day issues that may continue for some time," Bender added.
MGM stock price can recover
MGM suffered a ransomware attack with many victims. This includes guests at the company's resorts and employees whose personal information was reportedly stolen. This data includes lost access information such as paid vacation plans and retirement benefits. Add investors to this list.
MGM shares have fallen 6% since the cyberattack began, wiping out $850 million in market value. Bender expects the stock to rebound and reiterated an outperform rating and $60 price target on the stock. This implies an upside potential of over 50% from current levels.
The analyst concluded: "Historical precedent suggests that previous hacks of credit card and personal data in this space have not had a significant impact on long-term sales, and in return the companies' share prices have recovered."
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Source: www.casino.org
