The gaming industry in Macau is hot, which is great news for
Melco Crown Entertainment Limited
). This developer and owner of casino gaming and entertainment
resorts hit a 52-week high on Jan 15, shortly after a report that
Macau's gaming revenue grew 13.5% in 2012. Melco Crown
Entertainment primarily operates in this region.
Earnings estimates for this Zacks Rank #1 (Strong Buy) have been on
the rise since the announcement and since its solid third quarter
results. The stock also carries an attractive long-term earnings
growth rate of 28.7% and a PEG ratio of 0.78x.
Macau Gaming Revenues Continue to Rise
Amid concerns of a Chinese slowdown, Macau's gaming revenue grew
13.5% year over year to $38.0 billion in 2012, as reported by
Macau's Gaming Inspection and Coordination Bureau in early January.
As per the Bureau, December gambling revenue in Macau touched a new
high with an increase of 20% to $3.5 billion, beating the previous
record set in October. The actual figures surpassed both Bureau and
This growth momentum is expected to continue in the near term,
thanks to a growing Chinese middle class population. Melco Crown
Entertainment, being a Macau-focused casino operator, is most
likely to benefit from the opportunity.
Solid Third Quarter Beat
In November, Melco Crown Entertainment's third-quarter earnings of
20 cents per share beat the Zacks Consensus Estimate by 42.9%,
while its net sales of $1,010.8 surpassed the Zacks Consensus
Estimate by 2.8%. In particular, mass market segments at City of
Dreams experienced strong revenue growth.
Earnings Estimates Moving Up
The Zacks Consensus Estimate for 2012 has risen 1.4% to 74 cents
per share over the last 30 days, representing a year-over-year
increase of 23.6%. For 2013, the Zacks Consensus Estimate has
advanced 8.8% to 87 cents as 6 of 12 estimates were revised higher,
suggesting a year-over-year improvement of 17.6%.
Melco Crown Entertainment currently trades at a forward
price/earnings (P/E) ratio of 22.3x and has a price to sales (P/S)
multiple of 2.7x, which are both at a premium to the peer group
However, the valuation is attractive on a price to book (P/B),
price/earnings to growth (PEG) and return on equity (ROE) basis.
The stock currently trades at a forward P/B of 3.11x, a 3.7%
discount to the peer group average.
The PEG ratio comes in at 0.78x, a 31.6% discount to the peer group
average of 1.14x. Moreover, it has a trailing 12-month ROE of
12.9%, which is slightly above its peer group average of 12.4%,
suggesting efficient reinvestment of earnings compared to its peer
Shares of Melco Crown have been rising since late-December 2012 and
reached a new 52-week high of $20.02 on Jan 15, 2013. The stock is
currently trading above its 50- and 200-day moving averages, which
stand at $16.12 and $13.38, respectively.
Volume averages roughly 4799K daily. The 52-week return for the
stock is 83.1%, compared to 13.8% for the S&P 500 index.
Based in Macau, Melco Crown Entertainment Limited owns and develops
casino gaming and entertainment resort facilities. It owns and
operates the City of Dreams, Altira Macau and Mocha Clubs.
The market cap of the company is $10.7 billion. Some other stocks
from the same sector expected to perform strongly include Ameristar
Casinos Inc. (
), Full House Resorts Inc. (
) and International Game Technology (
). All three companies carry a Zacks Rank #2 (Buy).
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