Why Melco Crown Entertainment (MPEL) Stock Is Down Today

NEW YORK (TheStreet) -- Melco Crown Entertainment (MPEL) was falling 7.2% to $33.02 Monday after several junket incidents in Macau weaken market sentiments towards casinos operating in the region.

According to a report from Credit Suisse, a principal of a small junket in Macau absconded with between 8 billion and 10 billion Hong Kong dollars ($1 billion to $1.3 billion). The amount is small relative to the Macau gaming market, but can impact market sentiment and slow the velocity of capital and the VIP business according to the report.

Credit Suisse also cited the wife of Cheong Chitai, owner of Naptune Group, one of the top three junkets in Macau, who was detained with liquid assets of 200 million Hong Kong dollars frozen by the police. The Next Magazine article detailing the arrest also said that investigators compiled a list of "20 junket operators who are allegedly assisting corrupt mainland officials in money laundering and around 40 people connected with Neptune Group have allegedly been detained or questioned by HK police since the detention of Mrs Cheong."

Junkets service the VIP segment in Macau, which contributed to about two-thirds of total revenue and about 35% of gaming profit in the region in 2013.

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

"We rate MELCO CROWN ENTMT LTD (MPEL) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, solid stock price performance, impressive record of earnings per share growth, compelling growth in net income and notable return on equity. We feel these strengths outweigh the fact that the company shows low profit margins."

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

  • The revenue growth greatly exceeded the industry average of 4.8%. Since the same quarter one year prior, revenues rose by 26.6%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Powered by its strong earnings growth of 100.00% and other important driving factors, this stock has surged by 56.65% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, although almost any stock can fall in a broad market decline, MPEL should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • MELCO CROWN ENTMT LTD reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, MELCO CROWN ENTMT LTD increased its bottom line by earning $1.15 versus $0.76 in the prior year. This year, the market expects an improvement in earnings ($1.75 versus $1.15).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Hotels, Restaurants & Leisure industry. The net income increased by 106.7% when compared to the same quarter one year prior, rising from $107.98 million to $223.25 million.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Hotels, Restaurants & Leisure industry and the overall market, MELCO CROWN ENTMT LTD's return on equity exceeds that of both the industry average and the S&P 500.
  • You can view the full analysis from the report here: MPEL Ratings Report

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Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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