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Earnings: What’s in the Cards for MGM’s Q3 Results?

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November 4, 2016
MGM Resorts International & Wynn Resorts profit predictions and stock news.

The stakes may be high going into MGM Resorts International’s (MGM) Q3 earnings, which come out ahead of Monday’s trading session, considering shares of rival casino operator Wynn Resorts (WYNN) fell over 9% when weaker-than-expected earnings were reported Nov. 2.

WYNN’s issues were in Macau, where it opened a new casino that analysts say has cannibalized its older casino. Construction there on a light-rail transit system has impeded both foot and vehicle traffic in and out of the casino, WYNN executives said on a conference call. And stepped-up competition from other new casinos in Macau as well as older ones, including one of MGM’s, has pulled market share away from everyone, analysts say.

All that may prove to be a bigger problem for WYNN than MGM because MGM derives some 70% of its revenues from Las Vegas, while nearly 60% of WYNN’s are from Macau, the only place in China that allows gambling. And casino revenues in Las Vegas have been robust, analysts say, amid improving employment-rate trends and rising tourism numbers in the region.

“Macau poses a challenge to MGM’s ability to grow revenue, due to stiff competition in that market,” according to Trefis, the stock analysis service. “That said, the company’s improved hotel, entertainment, and retail revenues from the Las Vegas Strip region is likely to make up for it in the short term.” What’s more, MGM’s revenues appear to be more diversified, with some 63% of its U.S. revenues derived from its hotel, food and beverage, and entertainment and retail operations, Trefis says.

There are many topics on MGM’s plate on which analysts may have questions. How are plans progressing toward the Dec. 8 opening of the new casino at National Harbor in Maryland? What about Cotai, MGM's second Macau-based casino, scheduled to open in 2017? What are the forecasts for revenue growth in Las Vegas and its yet-to-be-named National Hockey League expansion team? And how might football revenue be affected if the Oakland Raiders are successful in their attempt to relocate to Las Vegas?  

At Thomson Reuters, analysts polled are projecting earnings per share of $0.11, down a penny from the year-ago results. Revenue is projected to reach $2.4 billion, up 4% from last year. In the last 10 quarters, MGM beat Wall Street’s average expectations seven times.

Short-term options traders have priced in a potential share price move of slightly more than 4% in either direction around the earnings release, according to the Market Maker Move™ indicator on the thinkorswim® platform from TD Ameritrade.

Trading in calls was heaviest at the 27- and 29-strikes while put activity was spread out across several strikes. The implied volatility is at the 44th 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, 2015-16

FIGURE 1: ANTE UP?

Shares of MGM have surged 59% since hitting a low in early February and have traded above their 50-day moving average since late August. Chart source: thinkorswim® by TD Ameritrade.  Data source: Standard & Poor’s. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.