Big earnings report from MGM Resorts before the market open tomorrow

Tomorrow’s earnings report from MGM Resorts International (MGM) could be make or break for the call options that I hold on this stock in my Volatility Portfolio. The options have been all over the block in recent weeks from up 50% to down 30% on market volatility and on anticipation of the opening of the company’s new hotel and casino on Macao’s Cotai strip. The stock sold off slightly on Friday, falling 1.53% (53 cents) to $34.37. The options in this portfolio expire on March 16 with a call at $33 so they’re very sensitive to near-term movement in the underlying shares. On Friday this position was down 28% since I added it to this portfolio on September 13, 2017.

The company is expected to report fourth quarter revenue of $2.51 billion and earnings per share of 10 cents.

It’s guidance, however, that will be most important for the stock. The company has opened its $3.4 billion, 1400-room Cotai property just ahead of the Chinese New Year festival that began on February 16. The hotel and casino is MGM’s first on the Cotai strip, which has been gradually taking market share from the older areas of Macao. MGM’s original Macao property recorded a decline in operating income in the third quarter.

It’s by no means clear what the company needs to project for the rest of 2018 to make analysts happy and to move up the share price. Wynn Resorts (WYNN) recently opened the Wynn Palace just across the street from MGM’s casino. The Adjusted EBITDA for the Wynn Palace jumped 145% to $190 million in the fourth quarter. The Sands Coatai Central saw EBITDA climb 53%. Look for a projection for the annual run rate at the MGM Cotai. A projection of $500 million in adjusted EBITDA would probably be strong enough to push the shares higher in the near term. The shares traded at $38.03 on January 29.

I also own shares in my Jubak Picks portfolio. I expect them to be much less volatile on earnings but they are still likely to move.