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What Awaits MGM Resorts (MGM) This Earnings Season?

MGM Resorts InternationalMGM is slated to report third-quarter 2015 results on Oct 29, before the opening bell. The company posted a positive earnings surprise of 54.55% in the last reported quarter. The company has posted positive earnings surprises in two of the trailing four quarters. Let's see how things are shaping up for this announcement.

Factors Influencing This Quarter

MGM Resorts' revenues have been missing the Zacks Consensus Estimate over the past three quarters, owing to a sluggish environment in Macau, a key operating region for the company. In fact, revenues in Macau have plunged in double digits in all three months of the quarter due to the anti-graft corruption drive undertaken by the Chinese government. As a result, the VIP business in Macau has been affected considerably.

China's crackdown on illegal money transfers, credit growth issues, and tighter restrictions on visas have posed considerable threats to Macau's gaming revenues, which have raised concerns for companies like MGM Resorts. In fact, the latest decline for the month of September marked the 16th consecutive decline.

Given the current scenario, the soon-to-be reported quarter is expected to be a tough one for the company. We note that Chinese visitors account for more than 60% of Macau's traffic. Therefore, the weakening of yuan is likely to further contract Macau's gambling revenues as it is making it more expensive for Chinese gamblers to place their bets.

Nevertheless, a comparatively better performance at main floor and non-gaming would mitigate the effects of a slowdown in the VIP gaming business in Macau to some extent. Also, the company's properties at Las Vegas would leverage the benefits of an improving employment rate and other positive factors related to tourism in Las Vegas.

In fact, MGM Resorts expects to see improvement in the retail and leisure business in the third quarter and the back half of the year. It expects wholly-owned strip RevPAR growth to be approximately 6% in the third quarter. Also, the company expects to benefit from the Profit Growth Plan (that began in Jul 2015) in the second half of the year. Besides focusing on improving business process through greater efficiency and lower cost, the plan is intended to identify areas of opportunity that drive revenue growth.

Earnings Whispers

Our proven model does not conclusively show that MGM Resorts is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: MGM Resorts' Earnings ESP stands at 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 3 cents.

Zacks Rank: MGM Resorts has a Zacks Rank #3 (Hold). Though Zacks Rank #1, 2 or 3 increases the predictive power of ESP, the company's ESP of 0.00% makes surprise prediction difficult.

We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement.

Stocks That Warrant a Look

Here are some companies in the gaming industry and consumer discretionary sector that investors may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Melco Crown Entertainment Ltd. MPEL has an earnings ESP of +10.00% and a Zacks Rank #3.

Outerwall Inc. OUTR has an earnings ESP of +4.29% and a Zacks Rank #1 (Strong Buy).

Townsquare Media, Inc. TSQ has an earnings ESP of +2.50% and a Zacks Rank #2 (Buy).

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MGM RESORTS INT (MGM): Free Stock Analysis Report

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OUTERWALL INC (OUTR): Free Stock Analysis Report

TOWNSQAR MEDIA (TSQ): Free Stock Analysis Report

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


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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