U.S. stocks edge higher; solid earnings season continues
Investing.com - Citizens JMP analyst Jordan Bender has reiterated a Market Perform rating on MGM Resorts (NYSE:MGM), highlighting potential benefits from new tax legislation for tipped employees. The company, currently valued at $10.2 billion, has seen its stock surge over 9% in the past week. According to InvestingPro data, analysts have set price targets ranging from $35 to $59, suggesting potential upside.
The legislation allows tipped employees to deduct up to the first $25,000 of voluntary tips from their taxes. While these workers must still pay taxes on tips as they are earned, they can claim deductions when filing tax returns.
This tax structure is expected to result in larger tax refunds during tax season, potentially creating an uplift in revenue for MGM Resorts during the first and second quarters of the year.
During a recent trip to Las Vegas, JMP noted that gaming operators expressed uncertainty about the precise financial impact of the legislation on their businesses, though the firm views it as a positive catalyst for the sector.
The tax exemption on tips is not permanent, however, as the provision is set to expire in 2028, creating a time-limited benefit for workers in the hospitality industry and potentially for companies like MGM Resorts. Based on current market conditions, InvestingPro’s technical analysis indicates the stock is in overbought territory, suggesting investors should monitor entry points carefully.
In other recent news, MGM Resorts reported a normalized first-quarter earnings per share (EPS) of $0.69, surpassing consensus estimates by $0.23, with revenues of $4.3 billion, which fell slightly short by $7 million. MGM Resorts experienced a 3% decline in Las Vegas revenues due to lower average daily room rates, while casino revenue increased from higher win rates. The Regional segment saw a 1% dip in revenues, though EBITDA rose by 2% due to insurance proceeds from a 2023 cybersecurity incident. Meanwhile, MGM China (OTC:MCHVY) faced a downturn with revenues and EBITDA decreasing by 3% and 5%, respectively.
Analyst ratings have been mixed; Goldman Sachs initiated coverage with a Sell rating, expressing concerns over MGM’s free cash flow and capital expenditure cycle. Conversely, JPMorgan initiated a neutral rating, noting Las Vegas Strip earnings momentum and highlighting potential positive catalysts like a New York gaming license. Citizens JMP maintained a Market Outperform rating, observing a slight increase in short-term bookings in Las Vegas. CFRA downgraded the stock from Buy to Hold, citing weakening consumer sentiment, while Stifel lowered the price target to $44 but maintained a Buy rating, reflecting cautious optimism amid economic challenges.
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