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Earnings Preview: A Look at Consumer Spending With UA and MGM

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April 26, 2017
MGM Grand Resort Casino
iStockphoto.com/Wirepec

Even though earnings might be a little overshadowed by the big tax reform announcement planned for today, that won’t likely  detract from the mostly positive first-quarter results across sectors. Dow components Boeing (BA), Procter & Gamble (PG), and United Technologies (UTX) all reported earnings this morning that beat expectations. UTX’s revenue also beat expectations, but revenue for PG and BA came in slightly below forecasts. Next up, Under Armour Inc. (UA, UAA) and MGM Resorts International (MGM) report before market open tomorrow, April 27.      

Under Armour: What Might Be in Store After Tough Q4?

It’s been a tough environment for brick-and-mortar retailers in general, but it’s been particularly tough for sporting goods retailers. There’s been a string of bankruptcies as ecommerce disrupted the industry, the largest being Sports Authority when it liquidated in 2016 and shuttered all its locations. That can put pressure on companies’ such as UA and Nike (NKE) wholesale business, but it also can pressure profit margins as full-price products struggle to compete with cheaper merchandise being liquidated in store closings—two impacts commonly cited over the past year on sporting apparel companies’ earnings calls.

UA is expected to post a loss of $0.04 per share—its first projected loss in the past 8 quarters—on revenue of $1.1 billion, according to consensus third-party analyst estimates. Up until last quarter, the company had 26 consecutive quarters of revenue growth over 20%. UA and UAA, the two classes of the company’s stock, lost about half their value over the past year.

The options market has priced in about a 8.4% potential stock move in either direction around UA’s earnings release, according to the Market Maker Move indicator on the thinkorswim® platform. In short-term options trading at the April 28 weekly expiration, calls were active at the 19 and 20 strike prices while puts were active at the 17 and 17.5 strikes. The implied volatility sits at the 56th percentile.

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.

Side by side comparison of Nike and Under Armour business divisions

FIGURE 1: UA VERSUS NKE.

Apparel is the largest division of  Under Armour while Footwear is the largest division for Nike. TD Ameritrade clients can analyze potential revenue drivers of a stock on the Fundamentals tab on the thinkorswim® platformTrefis 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.

Gambling and Casinos with MGM Earnings

Vegas might be the thing that comes to most people’s minds when they think of casinos, but attention has been increasingly shifting to Macau—Asia’s gambling mecca. Macau gaming revenue, a metric widely followed by casino analysts, jumped 13% in the first three months this year. Many analysts think that increase could potentially translate into higher profits for casinos with operations there.

Instinet analyst Harry Curtis recently pointed out MGM has been heavily investing in new projects, including its new $3 billion MGM Cotai in Macau. Curtis expects free cash flow to increase significantly once those projects end, allowing it to potentially increase dividends or buy back shares. 

For the first quarter, MGM is expected to report earnings of $0.26 per share--up $0.13 from Q1 2016—on revenue of $2.6 billion, according to consensus third-party analyst estimates. The company missed analyst earnings estimates by a wide margin in the last quarter, causing the stock to tumble 9.3% in trading that day.

The options market has priced in about a 4% potential stock move in either direction around MGM’s earnings release, according to the Market Maker Move indicator. In short-term options trading at the April 28 weekly expiration, calls were active at the 28.5 and 29 strike prices while puts were active at the 28 strike. The implied volatility sits at the 51st percentile. 

MGM YTD stock performance compared to WYNN, LVS and SPX

FIGURE 2: CASINO COMPARISON.

The year-to-date performance of MGM compared to Wynn Resorts (red line), Las Vegas Sands (teal line) and the S&P 500 (purple line). YTD performance as a percentage is shown on the right side. 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.

If you haven’t had a chance, check out what might be expected when Ford (F), General Motors (GM), Chevron (CVX), and ExxonMobil (XOM) report earnings this week.

Good Trading,
JJ
@TDAJJKinahan

NC