Melco Resorts has 'ammunition' for Macau growth in 2024, analysts say
Melco Crown Entertainment Ltd. (NASDAQ: MLCO ) is well positioned to outpace the growth of its Macau rivals in 2024.
That's the view of JPMorgan analyst Joseph Grave, who recently met with Melco CEO Lawrence Ho and CFO Jeff Davis. It is believed to be the first time the City of Dreams operator has met with U.S. investors in some time. Greif believes Melco has the "ammunition" to achieve better growth rates in 2024 compared to its Macau rivals.
(Melco) is easier to compare year-over-year than its peers (1Q and 2Q23 results slightly trailed the market," analysts noted."Generates Incremental growth (official opening February/March 2024."
Grave rates the stock an "overweight" and has a $10 price target, which implies a 15.7% upside from Monday's closing price of $8.64. While Melco has gained 21.86% over the past month, the stock is down 24.87% year to date and is 40.23% below its 52-week high.
Melco Resorts has a strong balance sheet
Melco Resorts' troubles in 2023 are that its stock price trades at a steep discount multiple, as does its Macau casino operator sibling. The stocks are cheaper than they have been in more than a year.
Nonetheless, Stanley Ho's gaming company has strong liquidity. As of the end of the third quarter, Melco International had $1.2 billion in cash (excluding restricted cash). That suggests some value, as the operator has a market capitalization of $3.1 billion, perhaps a sign that the investment community isn't giving the gaming company the credit it deserves for its cash holdings.
Furthermore, this solid balance sheet suggests Melco can pay down its debt for the foreseeable future - which is relevant considering Macau franchisee debt has soared due to the coronavirus pandemic. Melco International has no debt maturities until 2025.
"We continue to expect debt repayment (through excess cash and operating cash flow) and view the business outside of Macau as stable," Greif noted.
Mass and quality mass players can boost Melco International
In Macau, Melco Crown can benefit from continued growth momentum in the mass and premium mass segments in 2024 and leverage increased marketing and special events to attract these players to their respective administrative regions (SARs). Fortunately, these punters and their VIP counterparts don't seem worried about the weakening of the overall Chinese economy.
Players appear to be less concerned than investors about the current state of the (Chinese) economy and the recent increase in respiratory illnesses in China, and they...are demonstrating their still-strong luxury spending behavior," according to Citi analysts.
Melco Crown also offers investors the advantage of geographic diversification, as the company has operations in the Philippines and recently opened Europe's largest casino in Cyprus.
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Source: www.casino.org
