MGM Resorts (MGM) Stock Falls After Wells Fargo Lowers Macau Gaming Revenue Forecast
NEW YORK (TheStreet) -- Shares of MGM Resorts International (MGM) - Get Report were falling 2% to $23.36 on Monday after analyst firm Wells Fargo lowered its November forecast for Macau gaming revenue.
In a note to investors, Wells Fargo said it expects Macau gaming revenue to fall between 30% and 34% in November compared to the year-ago month, according to StreetInsider.com. The analyst first previously estimated gaming revenue in the region would fall 30% in the month.
Wells Fargo analyst Cameron McKnight said recent checks suggest that average daily revenues were around 525 million Macau patacas in the week that ended on November 6. The revenue represents a 9% sequential decline and a 36% drop compared to the same week in 2014, despite the opening of Melco Crown's (MPEL) new Studio City resort.
"We remain on the sidelines on the Macau gaming names as estimates and valuations adjust to a 'new normal'' of: tighter government oversight, a recovery that is likely to be flatter than prior rebounds, and a weak Chinese economy, all of which are contributing to more muted revenue growth in Macau," McKnight wrote.
The Wells Fargo notes helped bring down shares of casino operators that operate in Macau, including MGM Resorts.
TheStreet Ratings team rates MGM RESORTS INTERNATIONAL as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
We rate MGM RESORTS INTERNATIONAL (MGM) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its solid stock price performance, growth in earnings per share and increase in net income. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity and generally higher debt management risk.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period. Although other factors naturally played a role, the company's strong earnings growth was key. Looking ahead, our view is that this company's fundamentals will not have much impact in either direction, allowing the stock to generally move up or down based on the push and pull of the broad market.
- MGM RESORTS INTERNATIONAL reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, MGM RESORTS INTERNATIONAL continued to lose money by earning -$0.32 versus -$0.35 in the prior year. This year, the market expects an improvement in earnings ($0.63 versus -$0.32).
- 38.71% is the gross profit margin for MGM RESORTS INTERNATIONAL which we consider to be strong. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, MGM's net profit margin of 2.91% significantly trails the industry average.
- The debt-to-equity ratio is very high at 2.17 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Even though the debt-to-equity ratio is weak, MGM's quick ratio is somewhat strong at 1.18, demonstrating the ability to handle short-term liquidity needs.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Hotels, Restaurants & Leisure industry and the overall market, MGM RESORTS INTERNATIONAL's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full analysis from the report here: MGM
Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.