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Why Is MGM (MGM) Down 4.9% Since Last Earnings Report?

Zacks Equity Research
McDonald's (MCD) closed at $204.51 in the latest trading session, marking a +0.34% move from the prior day.

A month has gone by since the last earnings report for MGM Resorts (MGM). Shares have lost about 4.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is MGM due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

MGM Resorts Q1 Earnings Miss, Revenues Beat Estimates

MGM Resorts reported mixed first-quarter 2019 financial numbers, wherein earnings missed the Zacks Consensus Estimate but revenues surpassed the same.

Adjusted earnings of 12 cents per share missed the consensus estimate of 16 cents and also declined sharply from 34 cents registered in the prior-year quarter.

Total revenues came in at $3,176.9 million, outpacing the consensus mark of $3,130 million and increased 13% year over year. The improvement was backed by robust performance of MGM China.

MGM China

MGM China’s net revenues increased 23% year over year to $734 million owing to net revenue contribution of $301 million from MGM Cotai.

The opening of MGM Cotai facilitated a 23% year-over-year increase in Main floor table game wins. VIP table game wins increased 2% from the prior-year quarter, primarily driven by the opening of VIP junket rooms in September 2018 at MGM Cotai.

MGM China’s adjusted property EBITDA (earnings before interest, taxes and amortization) increased 26% to $191 million from $152 million in the prior-year quarter. Moreover, adjusted property EBITDA margin came in at 26%, marking an increase of 50 basis points (bps) from the year-ago quarter figure.

Domestic Operations

MGM Resorts owns and operates several properties in Las Vegas. It also owns a number of assets in Mississippi and Michigan.

Net revenues at Las Vegas Strip Resorts came in at $1.4 billion, flat year over year. Revenue per available room (RevPAR) increased 3.7% from the prior-year quarter. Meanwhile, adjusted property EBITDA decreased 10% year over year while EBITDA margin contracted 311 bps. The decline was primarily due to weaker performance at casino.

Net revenues of $804 million from the company's regional operations increased 21% from the prior-year quarter tally, driven by the opening of MGM Springfield and the acquisition of Empire City Casino. Adjusted property EBITDA was $207 million, mirroring a 24% increase from the year-ago quarter. Adjusted Property EBITDA margin expanded 61 bps year over year.

Casino revenues in the quarter under review decreased 13% year over year at the company's Las Vegas Strip Resorts due to a 17% decline in table games wins. However, the same increased 23% at the company's Regional Operations owing to the opening of MGM Springfield, and increase in slot and table game wins at MGM National Harbor.

At the Las Vegas Strip Resorts, food and beverage revenues rose 8% backed by the opening of new outlets at Park MGM as well as NoMad Las Vegas. The same increased 24% at Regional Operations, favored by the opening of MGM Springfield and the acquisition of Empire City Casino.

Balance Sheet

MGM Resorts ended the first quarter with cash and cash equivalents of $1,223.4 million as of Mar 31, 2019, compared with $1,526.8 million as of Dec 31, 2018.

During the reported quarter, the company's board of directors approved a quarterly dividend of 13 cents per share, totaling $70 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -13.31% due to these changes.

VGM Scores

Currently, MGM has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, MGM has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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