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MGM Resorts to announce earnings

What's Happening

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.

Technical Analysis

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.

Analyst's Thoughts

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

Bullish 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.

Bearish Trade

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

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Originally published on InvestorsObserver.com


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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