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Earnings: The Yin and Yang of Vegas and Macau on MGM’s Q4

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February 15, 2017
MGM Resorts International Q4 profitability and stock outlook.
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When MGM reports Q4 earnings ahead of the market open Thursday, some analysts say it’s in the cards for the casino and resort operator to turn in another strong quarter, amid a resurgence of traffic in Las Vegas and an uptick in Macau’s gaming industry.

Also driving revenues might be the December opening of the MGM National Harbor in Maryland, which other analysts see as a potential contributor to MGM’s domestic presence, though it was only open for the final 22 days of the quarter. Las Vegas is the biggest contributor to MGM’s revenues, at about 60%, and other U.S. based casinos add another 14% to the top line.

Gross gaming revenues (GGRs) were reportedly higher by 4% in November for the Las Vegas market, according to data from the Nevada Gaming Control Board. Overall, U.S. casinos saw a 6% revenue increase in the first nine months of 2016, according to analysts. That’s expected to help offset some of the overall revenue declines that marked the previous several quarters in Macau, though recent reports point to a modest uptick in Q4 GGRs in Macau. Overall, the GGR decline in Macau was only 3.3% last year, compared with the 34.3% drop in 2015, analysts said.

In Q3, MGM put in an “unprecedented level” of effort to create a “permanent cultural change” in MGM’s operations, Chief Executive Jim Murren said on the conference call.

“We have changed this company literally at its very core,” Murren said. “From the level of sophistication in the way we look at our business and our customers to the future of the industry, its evolution and what MGM's role is within this industry.

“We built the building blocks that have created the success we see today,” said Murren, who called Q3 results “epic.” Revenues jumped 10% year-over-year with U.S. resorts revenue higher by 8%. “Cash flow remarkably increased 31% on a same-store basis,” Murren added, referring to an industry benchmark of resorts open longer than a year, led by continued strength in Las Vegas.

Some analysts say they are looking for more insight on how a recovering economy might help revenues in Las Vegas and elsewhere in the U.S., and if new tighter ATM withdrawal rules in China might hurt revenues in Macau.   

Wall Street analysts show a consensus revenue estimate of $2.42 billion, above the $2.26 billion reported a year ago, according to the third-party estimates on the Earnings Analysis* tab on the thinkorswim® platform from TD Ameritrade. On a per-share basis, profits are expected to come in at $0.16, double last year’s earnings of $0.08 a share. MGM has met or beaten Wall Street’s expectations in six of the last seven quarters.

The options market has priced in an expected share price move of about 4.1% in either direction around the earnings release, according to the Market Maker Move™ indicator on the thinkorswim® platform.

Call options trading has been heaviest at the weekly 29 strike while puts have been active at the 27.5 strike. The implied volatility sits at the 37th 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

FIGURE 1: DOUBLE DOWN?

MGM shares are up nearly 50% on a year-over-year basis, but have been trading in a tight range after hitting a 52-week high in December. Shares are trading well above the 200-day simple moving average (SMA) and are about par with the 50-day SMA. 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.

Take Your Earnings Research To A New Level

The new Earnings Analysis* tab on the thinkorswim® platform gives you earnings history, consensus estimates*, volatility and more in a single-snapshot view.

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