Melco PBL Entertainment ( MPEL) reported stellar first-quarter results Thursday morning, but the headline earnings beat doesn't tell the whole story.

The Macau casino operator company, which I own in the Bricks and Mortar mock portfolio, reported net income of $43.2 million, or 10 cents a share, beating the 9-cent EPS consensus estimate of Wall Street analysts polled by Thomson Reuters.

In the quarter, Melco benefitted from better-than-expected table game hold percentage -- which equates to the amount of betting chips that casinos win. Hold percentage was 3.1%, higher than the 2.4% in the previous quarter and above Melco's expected long-term average of 2.7%.

The higher hold percentage adds some noise and confusion to the quarter. On first glance, it would seem that Wall Street analysts would raise Melco's future earnings estimates today. However, the company may simply have met (or slightly missed) expectations in the quarter, adjusting for normalized hold.

Melco's adjusted cash flow -- or earnings before interest, taxes, depreciation and amortization (EBITDA) -- totaled $77.4 million in the quarter, up from a loss of $1.6 million in the fourth quarter.

EBITDA margins at the Crown property came in at an impressive 16.7% of net revenue.

Wall Street analysts are currently expecting Melco as a whole to report $251 million of EBITDA in 2008.

Melco has been one of the best-performing casino stocks this year, as the Hong Kong-based company's single casino, the Crown Macau, has come to dominate the VIP market in the Asian gambling region of Macau.

If the property can continue to operate at the impressive levels of the first quarter, then Melco is set to surpass earnings estimates this year. However, the noise of the hold percentage means results could be volatile going forward.

Nonetheless, the quarter was impressive and most of the negative sentiment is gone from Melco's stock, which has now been one of the best casino performers this year. Absent some positive Wall Street earnings upgrades today, however, the stock could be stuck in neutral here.

Melco shares fell in premarket trading to open Thursday down 1.9% at $13.99. The stock was recently losing 5% at $13.55.

Bricks and Mortar Portfolio
A Look at How Nicholas Yulico's Picks Have Performed
Rating Date Price at Rating Rating Current Price* Total Return** Year-End '07 Price 2008 YTD Return
Brookfield Properties (BPO) 1/23/2007 28.67 Own 20.47 -28.6% 19.25 6.3%
Global Real Estate ETF (RWX) 1/23/2007 64.00 Own 55.45 -13.4% 56.95 -2.6%
Ryland (RYL) 1/23/2007 56.00 Flag 32.77 41.5% 27.41 -19.6%
Trump (TRMP) 1/23/2007 17.50 Flag 2.56 85.4% 4.30 40.5%
Penn National (PENN) 2/6/2007 45.56 Own 45.37 -0.4% 59.55 -23.8%
Melco PBL (MPEL) 3/12/2007 15.46 Own 14.26 -7.8% 11.56 23.4%
Starwood Hotels (HOT) 7/12/2007 72.37 Own 53.40 -26.2% 44.03 21.3%
Home Depot (HD) 1/30/2008 29.71 Own 29.12 -2.0% -2.0%
Pulte Homes 1/31/2008 16.35 Flag 13.77 15.8% 15.8%
Average Total Portfolio Return, Unweighted, (including closed ratings) 19.8% 9.4%
Closed Ratings Rating Date Price at Rating Rating Closing Price*** Return**
Hilton (HLT) 3/2/2007 34.69 Own 47.50 36.9%
Home Solutions of America (HSOA) 4/24/2007 4.98 Flag 1.06 78.7%
Standard Pacific (SPF) 10/26/2007 5.25 Flag 2.20 58.1% 3.35 34.3%
Close At Start of Portfolio Current Value*
S&P 500 1427.99 1,408.66 -1.4% 1468.36 -4.1%
U.S. MSCI REIT Index 1140.36 949.15 -16.8% 870.64 9.0%
**For "flagged" stocks, a drop in price is tracked as a positive for the portfolio, and a rise in price is a negative.
***Hilton closed out of portfolio on 10/26/07 because Blackstone Group completed purchase of firm.
HSOA closed out of portfolio on 12/26/07 at day's closing price
SPF closed out of portfolio on 1/11/07 at day's closing price

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