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MGM Resorts' (MGM) Q1 Earnings: Will Macau Hurt Results?

MGM Resorts International MGM is set to report first-quarter 2016 results on May 5, before the opening bell. Last quarter, the company posted a substantial negative earnings surprise of 114.29%.

However, the company also posted positive earnings surprise in 3 out of the trailing 4 quarters, with the average earnings surprise being 106.49%.

Let’s see how things are shaping up for this announcement.

Factors to Consider

MGM Resorts’ earnings in the to-be-reported quarter are expected to benefit from the improving demand at its properties in Las Vegas, which reflects the improving employment rate and the rise in tourists. With the Las Vegas Strip recording high occupancy rates over the past year, the company has seen solid rise in resort revenues, which should boost the top line. Further, the diversification of its resort portfolio and non-gaming options should propel first-quarter revenues as well.

However, the sluggish environment in Macau is likely to keep revenues under pressure. In fact, revenues in Macau have plunged in double digits in all the three months of this quarter due to the anti-graft corruption drive undertaken by the Chinese government which significantly hurt VIP business in the region.

China's crackdown on illegal money transfers, credit growth issues and tighter restrictions on visas have had a negative impact on revenues in this region. The weakening of yuan is likely to further dent Macau’s gambling revenues as it gets more expensive for Chinese gamblers to place bets. Further, slowdown in the Chinese economy is hurting the mass market segment, which would in turn hurt revenues in the upcoming quarter.

Nevertheless, a comparatively better performance at main floor and non-gaming segments can somewhat make up for the slowdown in the VIP gaming business in Macau.

Earnings Whispers

Our proven model does not conclusively show that MGM Resorts is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: The Earnings ESP is -46.15%. This is because the Most Accurate estimate stands at 7 cents while the Zacks Consensus Estimate is pegged higher at 13 cents.

Zacks Rank: MGM Resorts’ Zacks Rank #3 increases the predictive power of the ESP. However, we also need a positive ESP to be sure of an earnings surprise.

Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some stocks in the consumer discretionary sector that investors may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Cinemark Holdings, Inc. CNK, with an Earnings ESP of +2.13% and a Zacks Rank #2.

Central Garden & Pet Company CENT, with an Earnings ESP of +3.39% and a Zacks Rank #2.

PVH Corp. PVH, with an Earnings ESP of +0.70% and a Zacks Rank #3.

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MGM RESORTS INT (MGM): Free Stock Analysis Report
 
CINEMARK HLDGS (CNK): Free Stock Analysis Report
 
CENTRAL GARDEN (CENT): Free Stock Analysis Report
 
PVH CORP (PVH): Free Stock Analysis Report
 
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