Melco Crown Entertainment Down to Strong Sell on Weak Q2 - Analyst Blog

On Aug 12, 2014, Zacks Investment Research downgraded Melco CrownEntertainment Limited ( MPEL ) to a Zacks Rank #5 (Strong Sell) on dissapointing second quarter results.

Why the Downgrade?

Last week, Melco Crown Entertainment posted weak second-quarter 2014 results, missing on both top and bottom line estimates. Adjusted earnings of 30 cents per share missed the Zacks Consensus Estimate of 37 cents by 18.9%. Further, earnings declined from the year-ago figure of 35 cents by 12.4%. The downside reflects lower-than-expected revenues.

In the quarter, net revenue declined 7.4% year over year to $1.20 billion and missed the Zacks Consensus Estimate of $2.59 billion by 9.4% due to lower group-wide rolling chip revenues, partially offset by improved mass market table games revenues.

The downside reflects slowdown in gambling in Macau as high-stake gamblers are curtailing spending due to a tepid Chinese economy. Additionally, a nationwide crackdown on corruption in China compelled Macau officials to impose restrictions on VIP gamblers to stop billions of dollars from being siphoned off illegally from mainland China to Macau. With the near-term outlook for gaming in Macau remaining bleak, we anticipate the pressure to persist for the company.

In fact, with the company's weak second quarter and the poor outlook on Macau, the 2014 consensus earnings estimate went down from $1.70 to $1.61 in the past 7 days and that for 2015 declined from $2.08 to $2.01, over the same time period.

Other Stocks That Warrant a Look

Better-ranked stocks in the broader Leisure Services sector include Marriott Vacations Worldwide Corp. ( VAC ), Choice Hotels International Inc. ( CHH ) and Wyndham Worldwide Corporation ( WYN ). All these stocks carry a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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