Will the Macau Slump Lower MGM Resorts’ (MGM) Earnings?

Zacks

MGM Resorts International MGM is set to report first quarter 2015 results on May 5, before the market opens. Last quarter, the company posted a negative earnings surprise of 83.33%. The company has posted negative earnings surprises in two of the trailing four quarters and has an average negative surprise of 7.92%.Let us see what is in store for the company this quarter.

Factors to Consider

Macau, a key operating region for MGM Resorts has been experiencing sluggish revenues over the past 10 months. As a result, the VIP business in Macau has been considerably affected. China's crackdown on illegal money transfers, credit growth concerns, and tighter restrictions on visas pose threats to Macau’s gaming revenues, raising concerns for companies like MGM Resorts. Additionally, the smoking ban in casinos and protests in Hong Kong have compounded woes.

In fact, Macau gaming revenues plunged in double digits in all three months of the quarter due to the anti-graft corruption drive taken by the Chinese government. Given the current scenario, the company is expected to bear the brunt of the Macau slump in the soon-to-be reported quarter as well.

However, strong growth in the mass market would mitigate the effects of a slowdown in the VIP gaming business in Macau to some extent.

Over the last 30 days, estimates for the first quarter and 2015 have largely declined.

Earnings Whispers?

Our proven model does not conclusively show that MGM Resorts is likely to beat earnings this quarter. That 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: Earnings ESP stands at -28.57%. This is because the Most Accurate estimate stands at 10 cents while the Zacks Consensus Estimate is pegged higher at 14 cents per share.

Zacks Rank: MGM Resorts presently has a Zacks Rank #4 (Sell). We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some other 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:

Isle of Capri Casinos, Inc. ISLE with an Earnings ESP of +2.44% and a Zacks Rank #1 (Strong Buy).

Skullcandy, Inc. SKUL with an Earnings ESP of +7.69% and a Zacks Rank #1.

Intrawest Resorts Holdings, Inc. SNOW with an Earnings ESP of +2.17% and a Zacks Rank #2 (Buy).

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