A tough operating environment in Macau weighed on casino stocks from Jun 2014 to most part of 2016.
However, Macau's gambling revenues marked a turnaround and have been rising since the second half of 2016 with new resorts attracting high rollers as well as leisure gamblers. Meanwhile, efforts undertaken by Macau operators to revive revenues by wooing tourists and recreational gamblers with family-friendly resorts and more non-gaming facilities have also started yielding results.
In fact, gaming revenue in Macau grew on an annual basis in May to register 10 consecutive months of gains. Thus, it seems that the worst is over for Macau as the gambling industry is showing clear signs of stabilization.
Hence, this makes it the right time to add a few casino companies with Macau exposure to your portfolio now. Melco Resorts & Entertainment Limited (MLCO - Free Report) , a developer, owner and operator of casino gaming and entertainment casino resort facilities primarily in Asia, is one such stock, which is worth considering.
The company gets the majority of its revenue from the Macau region, so it is poised to benefit from the recent recovery there.
What Makes Melco Resorts a Solid Choice?
Stock Price Movement: Melco Resorts’ shares have outperformed the broader Zacks categorized Gaming industry in the past one year. While the stock surged 61.2%, the broader industry gained 29% in the same time frame. Given the improving gaming trends in Macau, we believe the stock should perform well in the quarters ahead as well.
Earnings & Revenue Growth: Arguably, nothing is more important than earnings growth as surging profit levels is often an indication of strong prospects (and stock price gains) for the company in question.
While Melco Resorts has a historical earnings per share (EPS) growth rate of over 100% compared with the industry average of 17.7%, investors should really focus on its projected growth. Here, the company is looking to grow at a rate of 82.6%, significantly higher than the industry average of just 17.8%.
Propelling the earnings forward is the company’s solid revenue growth story. Notably, projected sales growth for the current year is 11%, which is higher than the broader industry’s estimate of 3.3%.
Focus on Non-Gaming Revenues, Cost-Control: Better performance at the non-gaming segments like rooms, and food and beverages are expected to continue driving revenues. The company’s large-scale resorts provide distinctive lodging, entertainment and retail options, which appeals to a broader audience from around the region.
Additionally, Melco Resorts’ cost-control efforts including effective management of marketing expenses are likely to keep boosting profits and margins.
Other Key Factors: The management also expects Philippines’ gaming industry to be supported by the country's robust economic growth and its expanding inbound tourism strategy. Thus, Melco Resorts’ Entertainment City property therein is poised to largely benefit from this growth.
Furthermore, the addition of new VIP tables at the company’s Studio City property is aiding in delivering a broader product offering to a wider breadth of customers, which in turn is expected to drive increased profitability.
Earnings History and Estimate Revisions: Melco Resorts has topped earnings estimates in each of the seven trailing quarters, with an average beat of 130.42% in the last four quarters.
Moreover, the Zacks Consensus Estimate for Melco Resorts’ current quarter’s earnings has moved up 33.3%, reflecting two upward revisions versus none downward, over the last 60 days. Also, current year’s earnings estimates have inched up 43.8%, on the back of four upward revisions versus no downward revision. The positive earnings estimate revisions indicate analysts’ confidence and substantiate the Zacks Rank #1 (Strong Buy) for the stock.
Other top-ranked stocks in the broader Consumer Discretionary sector include Wynn Resorts, Limited (WYNN - Free Report) , Marcus Corporation (MCS - Free Report) and Pinnacle Entertainment, Inc. (PNK - Free Report) . While Wynn Resorts and Marcus sport the same Zacks Rank as Melco Resorts, Pinnacle Entertainment carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Wynn Resorts’ 2017 earnings 38.7% in the last 60 days. Further, for 2017, earnings per share (EPS) is anticipated to increase 36.2%.
The Zacks Consensus Estimate for Marcus’ 2017 earnings climbed 10%, in the last 60 days. Moreover, the company’s earnings surpassed the Zacks Consensus Estimate in each of the last four quarters, with an average beat of 15.38%.
The Zacks Consensus Estimate for Pinnacle Entertainment’s 2017 earnings climbed over 100%, in the last 60 days. Further, for 2017, EPS is expected to grow significantly.
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