MGM's Earnings, Macau Matters, And What Happens In Vegas Matters

|
Includes: BYD, SCTY, TSLA
by: JJ Kinahan

Summary

Over the April-to-June period, TSLA reported that it delivered more than 14,300 autos, which was well below its target of 17,000.

Analysts reporting to Thomson Reuters expect a loss for TSLA of $0.52 a share, larger than the year-ago loss of $0.48 a share.

Analysts also expect negative results coming out of the Las Vegas market, which makes up about 60% of MGM’s revenues.

Tesla (NASDAQ:TSLA) has generated a number of headlines recently, ranging from its $2.6 billion deal to acquire SolarCity (NASDAQ:SCTY), to what role its autopilot system may have played in at least one fatal accident. But when it turns in Q2 results after the bell Wednesday, investors are likely to turn their focus to a recurring story: the log jam between production rates and delivery lag, which analysts say is improving.

Over the April-to-June period, TSLA reported that it delivered more than 14,300 autos, which was well below its target of 17,000. How's that going? Were more delivered before the quarter ended? What's more, Chief Executive Elon Musk laid out a "master plan" last week for a solar-powered, fully autonomous car-sharing program.

Analysts reporting to Thomson Reuters expect a loss of $0.52 a share, larger than the year-ago loss of $0.48 a share. Revenues, however, are forecast to rise to $1.6 billion from $1.2 billion a year ago.

Short-term options traders have priced in a potential 5.5% share price move in either direction around the earnings release, according to the Market Maker Move™ indicator on the thinkorswim®platform by TD Ameritrade.

There's been active options trading in puts at the 217.5- and 215-strike lines. Calls were active at the 230-strike lines. The implied volatility is at the 20th percentile. (Please remember past performance is no guarantee of future results.)

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation, to sell the underlying security at a predetermined price over a set period of time.

Click to enlarge

Figure 1: TSLA Treading Water Around $220. Since last quarter, shares of TSLA have traded in a range between $200 and $240. Image source: the TD Ameritrade thinkorswim® platform. Data source: Standard & Poor's. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

MGM's Macau Matters

When MGM reports Q2 results after the market opens Thursday, analysts say they'll once again be bracing for another decline amid flagging results in the Macau market. The potentially good news is that maybe the decline wasn't as steep as the 8% from the last quarter, signaling a sequential slowdown in Macau. That, however, doesn't appear to be helping the opening of a new casino on the Cotai strip, now delayed until 2017.

Meanwhile, analysts also expect negative results coming out of the Las Vegas market, which makes up about 60% of MGM's revenues. Why? According to analysts, year-over-year comparisons are to a period that saw the Floyd Mayweather/Manny Pacquiao fight coupled with the Rock in Rio music fest draw lots of people to Vegas. Then there's the recent $900 million acquisition of Boyd Gaming's (NYSE:BYD) 50% stake in the Borgata Hotel Casino & Spa in Atlantic City, N.J. What's the big picture on that?

Analysts reporting to Thomson Reuters expect earnings to rise to a per-share profit of $0.23, better than the year-ago profit of $0.17 a share. Revenues are forecast to slump to $2.3 billion from $2.4 billion last year.

Short-term options traders have priced in a potential 4.3% share price move in either direction around the earnings release, according to the Market Maker Move indicator.

There has been a lot of options trading in the monthly 22-strike puts. On the call side, trading has been active at the weekly 24-strike line. The implied volatility is at the 22nd percentile.

Click to enlarge

Figure 2: Lagging the Broader Market. Like many stocks, MGM fell after the Brexit news surprised investors. Unlike the broader market, MGM has not recovered from this sell-off. Data source: Standard & Poor's. Image source: the TD Ameritrade thinkorswim® platform. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

TD Ameritrade® commentary for educational purposes only. Member SIPC. Options involve risks and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.