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Will Melco Crown (MPEL) Miss Earnings on Macau Slowdown?

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Melco Crown Entertainment Limited is slated to report its second-quarter 2014 results on Aug 7. Last quarter, it posted a surprise of 9.76%. Let’s see what is in store this season.

Factors to Consider

Melco Crown that earns a better part of its revenues from Macau has beaten the Zacks Consensus Estimate in the past four quarters on the back of its flagship properties in the region. However, the overall gaming business in Macau has slowed down since May 2014.

China's crackdown on illegal money transfers, credit growth concerns, potential for tighter restrictions on visas and an impending smoking ban in casinos are adversely affecting gambling traffic in the Macau region, as evident from the sluggish Macau gaming data released for the past two months. These factors have kept gamblers at bay, primarily VIP gamblers.

Gross gaming revenue in Macau for the month of June declined 3.7% to $3.4 billion – the first time since Jun 2009. The decline can be attributed to the football World Cup that diverted some bettors and tourists away from the world’s largest gambling hub. For the month of May, gross gaming revenues increased only 9.3% to $4.1 billion. The May growth rate was lower than gross gaming revenue increase of 10.6% in the month of April and the lowest since February. Moreover, the number fell short of analysts’ expectation of 13.0% to 15.0% growth.

Given the scenario, revenues of gaming companies like Melco Crown are expected to be soft this quarter.

Earnings Whispers?

Our proven model does not conclusively show that Melco Crown is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Negative Zacks ESP:  The company’s Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at -10.81%.

Zacks Rank #4(Sell): We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Other Stocks to Consider

Here are some companies in the gaming and consumer discretionary sector that investors may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:

MGM Resorts International (MGM - Free Report) has an Earnings ESP of +41.67% and a Zacks Rank #3 (Hold).

Choice Hotels International Inc. (CHH - Free Report) has an Earnings ESP of +2.04% and a Zacks Rank #2 (Buy).

Harman International Industries, Incorporated has an Earnings ESP of +0.82% and a Zacks Rank #3.

In-Depth Zacks Research for the Tickers Above

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MGM Resorts International (MGM) - free report >>

Choice Hotels International, Inc. (CHH) - free report >>

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