NEW YORK (TheStreet) -- Shares of Melco Crown Entertainment (MPEL) are rising by 6.70% to $20.02 in mid-afternoon trading on Thursday, as some stocks in the resort and casino sector take off today amid speculation from Credit Suisse that the Macau gaming hub in China may see an improvement soon, Barron's reports.
In May, revenue in Macau, the only region in China where gambling is legal, fell by 37%. The district continued to struggle with the Chinese government's anticorruption crackdown in the area, which began a year ago.
However, after taking a closer look at Macau's May numbers Credit Suisse noticed "some green shoots," Barron's added.
In May VIP gaming grew by 3% from April, VIP rolling gained by 7%, and mass gaming spiked by 9%.
"We highlighted in our earlier piece that Macau was hurt by the slower visitation in Hong Kong. We believe the impact is gradually fading. In fact, recent data shows that the Chinese visitation also improved 7.2% year-over-year during 1-24 May in Hong Kong," Credit Suisse said in an analyst note, according to Barron's.
"As the mainland Chinese visitation trend between Hong Kong and Macau has strong correlation, we believe a better trend in Hong Kong should bode well for Macau," the note continued.
Melco Crown Entertainment is a Hong Kong-based developer, owner and operator of casino and resort facilities primarily in Asia.
So far today, 6.65 million shares of Melco Crown Entertainment have exchanged hands as compared to its average daily volume of 3.59 million shares.
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. The company's strengths can be seen in multiple areas, such as its reasonable valuation levels and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share, deteriorating net income and disappointing return on equity."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- MPEL's debt-to-equity ratio of 0.96 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. Despite the fact that MPEL's debt-to-equity ratio is mixed in its results, the company's quick ratio of 2.31 is high and demonstrates strong liquidity.
- MPEL, with its decline in revenue, underperformed when compared the industry average of 7.3%. Since the same quarter one year prior, revenues fell by 22.3%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. 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.
- The gross profit margin for MELCO CROWN ENTMT LTD is currently lower than what is desirable, coming in at 29.32%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 5.75% trails that of the industry average.
- You can view the full analysis from the report here: MPEL Ratings Report