The gaming industry in Macau is hot, which is great news for Melco Crown Entertainment Limited (MPEL). This developer and owner of casino gaming and entertainment resorts hit a 52-week high on Jan 15, shortly after a report that Macaus 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 analyst expectations.
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 Entertainments 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 averages.
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 group.
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. (ASCA), Full House Resorts Inc. (FLL) and International Game Technology (IGT). All three companies carry a Zacks Rank #2 (Buy).
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