MGM Resorts International (MGM), formerly known as MGM MIRAGE, is a $15 billion global hospitality company, operating a portfolio of destination resort brands, including Bellagio, MGM Grand, Mandalay Bay and The Mirage.
The resorts offer gaming, hotel, dining, entertainment, retail, and other resort amenities including golf courses. The company operates through two segments, Domestic Resorts and MGM China, with 14 resorts in the United States and multiple Macau properties.
Last week, MGM delivered a solid earnings report for Q4 but the outlook for this year saw analysts take down estimates sharply. Full-year 2019 EPS projections dropped over 10% from $1.31 to $1.17 and the 2020 profit outlook fell 11% as well.
The $1.17 for this year still represents 18% growth over last year, but that's over a disappointing and flat 2018 which saw profit estimates crater throughout the year from projections over $1.50 to just $0.99 at the final tally.
As we learned from the Las Vegas Sands (LVS) report in late January, the economic slowdown and equity bear market in China is having a big impact on gaming in Macau. Many industry analysts expect the southern Chinese territory, which is currently the world’s largest gambling region, to see revenues fall slightly in 2019 after two years of double-digit growth.
My colleague Ben Rains recently wrote of the LVS outlook and noted "Even the smallest downturn in Macau could hurt casino operators since the region pulled in $37 billion in 2018 against $6.6 billion in Las Vegas. In particular, the region’s high-rollers, which account for nearly half of global gambling revenues, might decrease their spending."
Three highlights from the MGM report...
1) Total revenues of $3.05 billion outpaced the consensus mark of $2.95 billion and increased 17.5% year over year. The improvement was backed by higher revenues at both gaming and non-gaming facilities.
2) MGM China’s net revenues increased 33% year over year to $687 million, courtesy of net revenue contribution of $287 million from MGM Cotai.
3) The company also increased its dividend yield, by 8%, on in-line China revenues and its Las Vegas segment which beat relatively easy year-over-year comps.
Zacks Rank Warned Even After Favorable Supreme Court Ruling on Sports Betting
Last May, my colleague Dave Bartosiak wrote about MGM as the Bear of the Day when shares were trading near $32...
If you’re looking for a big winner on the gaming news yesterday, you’re going to have to look at stocks like Penn National (PENN) and Boyd Gaming (BYD). These regional players most certainly will benefit from the Supreme Court opening the door for states to legalize sports gambling. Today’s Bear of the Day will also benefit from the ruling, but I want you to know what the earnings picture was like ahead of the recent event. It’s not as rosy as you’d like to believe.
I certainly agree that gaming across the country could help MGM. But until analysts start changing their EPS estimates based on the ruling, MGM is likely to remain a Zacks Rank #5 (Strong Sell). Over the last thirty days, four analysts have dropped their earning estimates for the current quarter while six have dropped their numbers for the current year. The bearish sentiment has dropped the Zacks Consensus Estimate from 38 cents to 27 cents for the current quarter while current year numbers have gone from $1.45 to $1.34.
(end of Bartosiak notes from May 15, 2018)
As described earlier, those falling 2018 EPS estimates imploded further throughout the remainder of the year. And investors who heeded Dave's warning avoided a 30% drop in shares into the Q4 stock market rout, with the October lows near $24 finally getting taken out in December with a $22 print.
While shares have recovered during the recent big rally, the earnings outlook has only gotten worse. For investors willing to gamble here, the risk-reward doesn't look promising. The best bet is to wait until the EPS estimates stop going down and stabilize. The Zacks Rank will let you know.
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Penn National Gaming, Inc. (PENN) : Free Stock Analysis Report
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