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Can MGM Resorts (MGM) Keep the Earnings Streak Alive?

Zacks Equity Research

We expect Las Vegas-based fast casino operator, MGM Resorts International (MGM) to beat expectations when it reports first-quarter 2014 results on Apr 29, before the opening bell.

Why a Likely Positive Surprise?

Our proven model shows that MGM Resorts is likely to beat earnings because it has the right combination of two key components.

Positive Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +20.00%. This is very meaningful and a leading indicator of a likely positive earnings surprise.

Zacks Rank: MGM Resorts has a Zacks Rank #3 (Hold). Note that stocks with Zacks Ranks #1, 2 and 3 have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.  

The combination of MGM Resorts’ Zacks Rank #3 and ESP of +20.00% makes us confident of an earnings beat on Apr 29.

What is Driving the Better-Than-Expected Earnings?

MGM Resorts has been a consistent growth story in the gaming sector with its stock climbing 75% over the past one year. Additionally, the company has delivered positive earnings surprises in the trailing four quarters, with an average earnings beat of a stupendous 449.17%.

In fact, MGM Resorts’ earnings in the trailing four quarters has comprehensively beaten the Zacks Consensus Estimate, mainly on the back of better-than-expected top line. Given the trend over the past quarters, revenues are expected to improve in the upcoming quarter as well, driven by the company’s Macau operations.

The Macau region has repeatedly delivered double-digit revenue growth for several months in a row, with gambling revenues increasing 40% year over year in February and 13% in March. MGM Resorts derives over one-third of its revenues from Macau and the region’s record growth will boost the company’s revenues in the coming quarter.  

Despite the optimism surrounding the Macau business, the company’s Las Vegas and CityCentre businesses, which are yet to fully recover from the economic downturn in the U.S., might prove to be a drag on the top line. Additionally, we are skeptical about China’s economic slowdown and tighter credit interest rates may affect overall demand for gaming in the upcoming quarter.

Other Stocks to Consider

MGM Resorts is not the only firm looking up this earnings season. We also anticipate earnings beat from three other companies in the broader consumer discretionary industry:

Carnival Corporation (CCL) has an Earnings ESP of +50.00% and a Zacks Rank #3.

Royal Caribbean Cruises Ltd. (RCL) has an Earnings ESP of +1.92% and a Zacks Rank #2 (Buy).

The Walt Disney Company (DIS) has an Earnings ESP of +1.03% and a Zacks Rank #2.

Read the Full Research Report on CCL
Read the Full Research Report on RCL
Read the Full Research Report on DIS
Read the Full Research Report on MGM

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