Factors Setting The Tone For Melco Resorts (MLCO) Q1 Earnings

Melco Resorts & Entertainment Limited (NASDAQ:MLCO) is scheduled to report first-quarter 2018 results on May 3, before the opening bell.

In the last reported quarter, the company’s earnings missed the Zacks Consensus Estimate by 13%. However, Melco Resorts’ bottom line surpassed the consensus mark in two of the trailing four quarters, with an average beat of 50.4%.

Q1 Expectations

The question lingering in investors’ minds now is whether Melco Resorts will be able to deliver a positive earnings surprise in the quarter to be reported. The Zacks Consensus Estimate for first-quarter earnings is pegged at 26 cents, higher than 24 cents in the year-ago quarter. Of late, the company’s earnings estimates have been stable. In the fourth quarter of 2017, it witnessed earnings growth of 58.9% on a year-over-year basis.

Meanwhile, analysts polled by Zacks expect revenues of nearly $1,324 million, up 3.6% from the prior-year quarter.

Let’s delve deeper to find out how the company’s top and bottom line will shape up this earnings season.

Factors at Play

We believe the Melco Resorts’ revenues in the first quarter are likely to be driven by mass and premium mass gaming revenues in Macau. Further, the company’s integrated resort offerings are expected to boost traffic and revenues. Per Macau’s Gaming Inspection and Coordination Bureau (“DICJ”), gross gaming revenues (GGR) rose year over year in all the three months of the quarter. This, in turn, indicates that the casino hub is firmly on road to recovery. We thus expect Melco Resorts’ performance in the region to get a boost in the to-be-reported quarter. Increased focus on non-gaming segments like rooms as well as food and beverages are further expected to drive the quarter’s results.

Furthermore, the Philippines gaming industry is being supported by the country's robust economic growth and its expanding inbound tourism strategy. City of Dreams, Manila, continues to deliver year-on-year growth across all gaming segments in the Philippines, Thus, Melco’s Entertainment City property therein is poised to largely benefit from this improvement.

However, the company’s first-quarter results might be affected by stringent capital controls by the Chinese government and increased audits of the junket industry by DICJ.

What Does the Zacks Model Unveil?

Our proven model does not show that Melco Resorts is likely to beat earnings estimates 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. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Melco Resorts has an Earnings ESP of -5.88%. Although, the company’s Zacks Rank #3 increases the predictive power of ESP, we need to have a positive ESP to be confident about an earnings surprise.

Stocks to Consider

Here are some stocks from the Consumer Discretionary sector that investors may consider, as our model shows that they have the right combination of elements to post an earnings beat in the first quarter:

Walt Disney (NYSE:DIS) , Marriott (NASDAQ:MAR) and Discovery Communications (NYSE:DIS) has an Earnings ESP of +1.34%, +0.40%, +0.39%, respectively. While Walt Disney and Marriott carry a Zacks Rank #3, Discovery Communications has a Zacks Rank #2. All the companies are scheduled to report quarterly numbers on May 8. You can see the complete list of today’s Zacks #1 Rank stocks here.

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