Earnings Preview: MGM’s Expansion into Macau Might Be Hot Topic

MGM opened a new resort and spa in Macau this week. Some Wall Street analysts said they will be interested in hearing what the sales expectations might be when earnings are released Tuesday.

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As earnings season inches toward the finish line, it’s time to check in on the gaming and resort industry, specifically MGM Resorts International (MGM), which is expected to report its results Tuesday, Feb. 20, before the markets open.

MGM Resorts: U.S., Macau Key Drivers

Much has happened under the MGM flag this quarter ranging from an unexpected slowdown in Las Vegas sales to a general hike in parking fees at some Las Vegas properties, to gearing up for its opening of a second resort and casino in Macau.

Occupancy rates for MGM hotels are projected to grow to 95.2% from 92%, according to analysis by Trefis (see figure 1 below). This comes at a time when average daily rates—a key industry measure—are expected to jump to $217 per room from $131, according to Trefis. Might those numbers still be on track?

U.S. hotels account for some 35.8% of the company’s operations while the Macau operations represent some 21.5%—a percentage that might get larger with last week’s opening of the second Macau property. U.S. slot games make up the third largest piece of MGM’s operations, at 17.8%, according to Trefis.

MGM Company Profile

FIGURE 1: WHAT DRIVES MGM?

MGM operations have been growing with more global hotels and resorts, but the U.S. hotel groups still dominate the company’s operations. Macau’s operations, representing nearly a quarter of the company’s operations, are expected to expand with this week’s opening of a second hotel and resort there. Image source: The  thinkorswim® platform from TD Ameritrade. Trefis information and estimates used in Company Profile are provided by Insight Guru, a separate and unaffiliated firm. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Many analysts said they want to know what the early expectations are for MGMs’s second Macau property, a $3.4 billion resort and casino that opened this week. Though the opening was postponed for many months, MGM managed to open it just ahead of the Chinese New Year that starts on Friday. Hotel prices tend to get jacked up during the holiday, according to published reports.

Earnings Analysis and Options Data

The consensus earnings estimate from third-party Wall Street analysts is $0.07 a share, according to the Earnings Analysis tab on the thinkorswim® platform from TD Ameritrade. That would be a 36% drop from last year’s $0.11 per share profit, which at the time was below analysts’ expectations of $0.16 a share. MGM has had a spotty track record with actual results compared with consensus expectations, having missed Wall Street’s projections three out of the last eight quarters. Revenue is projected to rise slightly more than 1% to $2.49 billion from $2.46 billion a year ago, which was higher than Wall Street’s forecast.

The options market has priced in an expected share price move of 2.8% in either direction around the earnings release, according to options data on the thinkorswim® platform. 

Call activity has been higher at the 35- and 38-strikes, while put activity has been concentrated at the 32-strike. The implied volatility sits at the 58th percentile. (Please remember past performance is no guarantee of future results.)

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation, to sell the underlying security at a predetermined price over a set period of time.

MGM, 12m, Feb 2018

FIGURE 2: CHIPPING HIGHER.

Shares of MGM have ground their way higher over the last 12 months, but, like much of the market, has seen a recent spate of volatility. Data source: Standard & Poor’s. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.

* Earnings data/research is provided by unaffiliated third parties.

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