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Will MGM Resorts (MGM) Disappoint This Earnings Season?

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MGM Resorts International (MGM - Free Report) is scheduled to report second-quarter 2017 numbers on Jul 27, before the opening bell.

Last quarter, MGM Resorts pulled off a 46.15% positive earnings surprise. In fact, the company’s earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters, with an average beat of 164.92%.

Let’s see how things are shaping up for this announcement.

Factors Likely to Affect Q2 Results

Given the improved operating environment in Macau, the company’s consistent efforts to boost tourism and traffic therein, has started yielding results with revenues at MGM China improving on a year-over-year basis in the last two quarters. In fact, this happened after it witnessed consistent year-over-year declines since the second quarter of 2014.

Per the Macau Gaming Inspection and Coordination Bureau, gross gaming revenues (GGR) rose in all the three months of the quarter too, thereby continuing the revival in Macao. This, in turn, should boost second-quarter results.

But VIP table games’ revenues witnessed a decline of 5% in the previous quarter as turnover plunged 16%. Thus, the results in the to-be-reported quarter may also be somewhat hampered given the lingering anxieties related to the sustainability of revenues from the VIP market.

Nevertheless, MGM Resorts’ earnings in the to-be-reported quarter are expected to benefit from higher demand at its properties in Las Vegas on the back of improving employment rate trends and increasing tourism numbers in the region. Moreover, the diversification of its resort portfolio and non-gaming options is likely to propel revenues. Meanwhile, the company’s profit growth plan is poised to increase the quarter’s profits.

However, the company expects the Easter calendar shift in April to negatively impact convention room nights. This along with higher-than-normal table games hold in prior-year quarter is thus set to provide tough year-over-year comparisons in the to-be-reported quarter. MGM Resorts thus anticipates its Las Vegas Strip revenues to be flat in the quarter, with casino revenues projected to decline slightly. Nevertheless, non-gaming revenues are expected to rise marginally.

Earnings Whispers

Our proven model does not conclusively show an earnings beat for MGM Resorts this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. However, that is not the case here as elaborated below.

Zacks ESP: MGM Resorts has an Earnings ESP of -3.45%. This is because the Most Accurate estimate is 28 cents, while the Zacks Consensus Estimate is pegged at 29 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: MGM Resorts has a Zacks Rank #4 (Sell).  

As it is, we caution you against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

Live Nation Entertainment, Inc. (LYV - Free Report) has an Earnings ESP of +31.25% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Penn National Gaming, Inc. (PENN - Free Report) has an Earnings ESP of +8.33% and a Zacks Rank #1.

Time Warner Inc. has an Earnings ESP of +3.39% and a Zacks Rank #2.

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