Melco Crown (MPEL) Stock Falls as Analysts Comment on Macau Revenue

Melco Crown (MPEL) shares are lower as Wells Fargo and Deutsche Bank comment on Macau gaming revenue, and the company's new Studio City resort.
By Lindsay Ingram ,

NEW YORK (TheStreet) -- Shares of Melco Crown Entertainment (MPEL) were falling 6.7% to $17.68 on Monday following analyst notes from Wells Fargo and Deutsche Bank.

In a note to investors, Wells Fargo said it expects Macau gaming revenue to fall between 30% and 34% in November compared to the year-ago month, according to StreetInsider.com. The analyst first previously estimated gaming revenue in the region would fall 30% in the month.

Wells Fargo analyst Cameron McKnight said recent checks suggest that average daily revenues were around 525 million Macau patacas in the week that ended on November 6. The revenue represents a 9% sequential decline and a 36% drop compared to the same week in 2014, despite the opening of Melco Crown's new Studio City resort.

"We remain on the sidelines on the Macau gaming names as estimates and valuations adjust to a ''new normal'' of: tighter government oversight, a recovery that is likely to be flatter than prior rebounds, and a weak Chinese economy, all of which are contributing to more muted revenue growth in Macau," McKnight wrote.

In a separate note, Deutsche Bank highlighted weak early data from the new Studio City, and reiterated its "hold" rating for the casino operator.

"In the first week of Nov, MPEL captured 14.8% market share (ex-slots) up from 13.3% in Oct. Initial impact from Studio City seems rather weak as all its initial 200 tables are for the mass market, which takes much longer than VIP to ramp," analyst Karen Tang wrote. "Since Studio City's opening two weeks ago, the biggest losers have been Galaxy and SJM, as their low-end mass player segment has the most overlap with Studio City."

TheStreet Ratings team rates MELCO CROWN ENTMT LTD as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

We rate MELCO CROWN ENTMT LTD (MPEL) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. Among the primary strengths of the company is its solid financial position based on a variety of debt and liquidity measures that we have evaluated. At the same time, however, we also find weaknesses including a generally disappointing performance in the stock itself, feeble growth in the company's earnings per share and deteriorating net income.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • MPEL's debt-to-equity ratio of 0.99 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 2.64 is very high and demonstrates very strong liquidity.
  • MPEL, with its decline in revenue, underperformed when compared the industry average of 1.5%. Since the same quarter one year prior, revenues fell by 23.6%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. In comparison to the other companies in the Hotels, Restaurants & Leisure industry and the overall market, MELCO CROWN ENTMT LTD's return on equity is significantly below that of the industry average and is below that of the S&P 500.
  • MELCO CROWN ENTMT LTD has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. Earnings per share have declined over the last year. We anticipate that this should continue in the coming year. During the past fiscal year, MELCO CROWN ENTMT LTD reported lower earnings of $1.10 versus $1.15 in the prior year. For the next year, the market is expecting a contraction of 70.9% in earnings ($0.32 versus $1.10).
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Hotels, Restaurants & Leisure industry. The net income has significantly decreased by 83.1% when compared to the same quarter one year ago, falling from $143.64 million to $24.25 million.
  • You can view the full analysis from the report here: MPEL

Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.

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