Resort and casino operator MGM Resorts ( MGM ) will report its fourth-quarter numbers before the market open on February 16. The consensus calls for earnings of $0.17 per share on revenue of $2.41 billion. The stock is down 3.0% since the start of the year.
MGM was recently trading at $28.59, down $2.03 from its 12-month high and $12.09 above its 12-month low. Technical indicators for MGM are neutral with a sideways trend. The stock has recent support above $27.80, and has resistance below $29.90. Of the 14 analysts who cover the stock, 12 rate it a "strong buy", and two rate it a "buy". The stock receives S&P Capital IQ's 5 STARS "Strong Buy" ranking.
MGM has enjoyed nice gains over the last year, as conditions improve in both Las Vegas and Macau. The stock has been stuck in a sideways trend over the last three months, a result of the stock's valuation. MGM has traded to a P/E of 54.7, which is high, but analysts do expect earnings growth of 19% during the year. The expected earnings growth is high enough to warrant a high valuation, but the stock is currently priced for perfection, which creates a lot of downside risk in the event of a disappointing quarterly report. The street is very upbeat on the recent quarter, with a whisper number of 20 cents per share, versus the consensus 17 cents. A couple of names in the sector have already reported, with Wynn Resorts ( WYNN ) topping estimates and Las Vegas Sands ( LVS ) posting disappointing numbers. LVS missed on the top and bottom lines, and the stock took a hit in reaction. The LVS report is troubling, and if MGM also misses its numbers the stock could take a big hit based on its valuation. As such, I would not look at a long position on the stock unless it is hedged with a decent amount of downside protection.
Stock Only Trade
If you want a bullish hedged trade on the stock, consider an April 21/25 bull-put credit spread for a 20-cent credit. That's a potential 5.3% return (27.4% annualized*) and the stock would have to fall 11.9% to cause a problem.
If you want to take a bearish stance on the stock at this time, consider an April 31/36 bear-call credit spread for a 45-cent credit. That's a potential 9.9% return (51.6% annualized*) and the stock would have to rise 10.0% to cause a problem.
Covered Call Trade
Originally published on InvestorsObserver.com