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Can Melco Resorts (MLCO) Pull Off a Surprise in Q2 Earnings?

Melco Resorts & Entertainment Limited MLCO is scheduled to report second-quarter 2017 results on Jul 27, before the opening bell.

Last quarter, this developer, owner and operator of casino gaming and entertainment casino resort facilities in Asia, delivered a massive positive earnings surprise of 200%. In fact, the company’s earnings surpassed the Zacks Consensus Estimate in each of the last four quarters, with an average beat of 130.42%.

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

Factors Likely to Influence Q2 Results

Per the Macau Gaming Inspection and Coordination Bureau, gross gaming revenues (GGR) rose in all the three months of the quarter, thereby continuing the revival in Macau. We thus expect the company’s performance in the region to get a boost in the to-be-reported quarter.

Conversely, the results may be somewhat hampered as concerns related to the sustainability of revenues from the VIP market linger.

Meanwhile, better performance at the non-gaming segments like rooms and food and beverages are expected to drive the quarter’s results. Notably, the company’s large-scale resorts provide distinctive lodging, entertainment and retail options, which appeals to a broader audience from around the region.

Additionally, Melco Resorts’s cost-control efforts including effective management of marketing expenses are likely to boost second-quarter profits and margins. Furthermore, the addition of new VIP tables at the company’s Studio City property is set to deliver a broader product offering to a wider breadth of customers. This, in turn, is expected to drive increased profitability in the quarter.

The management also expects Philippines’ gaming industry to be supported by the country's robust economic growth and its expanding inbound tourism strategy. Thus, Melco’s Entertainment City property therein is poised to largely benefit from this growth.

Earnings Whispers

Our proven model does not conclusively show earnings beat for Melco Resorts 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 elaborated below.

Zacks ESP: Melco Resorts has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 20 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Melco Resorts currently sports a Zacks Rank #1, which increases the predictive power of ESP. However, the company’s 0.00% ESP makes surprise prediction difficult.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement.

Stocks to Consider

Here are some companies to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

Live Nation Entertainment, Inc. LYV has an Earnings ESP of +31.25% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Penn National Gaming, Inc. PENN has an Earnings ESP of +8.33% and a Zacks Rank #1.

Time Warner Inc. TWX has an Earnings ESP of +3.39% and a Zacks Rank #2.

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