The gaming industry in Macau is hot, which is great news for Melco Crown Entertainment Limited (MPEL). This developer and owner of casino gaming and entertainment resorts hit a 52-week high on Jan 15, shortly after a report that Macau's gaming revenue grew 13.5% in 2012. Melco Crown Entertainment primarily operates in this region.
Earnings estimates for this Zacks Rank #1 (Strong Buy) have been on the rise since the announcement and since its solid third quarter results. The stock also carries an attractive long-term earnings growth rate of 28.7% and a PEG ratio of 0.78x.
Macau Gaming Revenues Continue to Rise
Amid concerns of a Chinese slowdown, Macau's gaming revenue grew 13.5% year over year to $38.0 billion in 2012, as reported by Macau's Gaming Inspection and Coordination Bureau in early January.
As per the Bureau, December gambling revenue in Macau touched a new high with an increase of 20% to $3.5 billion, beating the previous record set in October. The actual figures surpassed both Bureau and analyst expectations.
This growth momentum is expected to continue in the near term, thanks to a growing Chinese middle class population. Melco Crown Entertainment, being a Macau-focused casino operator, is most likely to benefit from the opportunity.
Solid Third Quarter Beat
In November, Melco Crown Entertainment's third-quarter earnings of 20 cents per share beat the Zacks Consensus Estimate by 42.9%, while its net sales of $1,010.8 surpassed the Zacks Consensus Estimate by 2.8%. In particular, mass market segments at City of Dreams experienced strong revenue growth.
Earnings Estimates Moving Up
The Zacks Consensus Estimate for 2012 has risen 1.4% to 74 cents per share over the last 30 days, representing a year-over-year increase of 23.6%. For 2013, the Zacks Consensus Estimate has advanced 8.8% to 87 cents as 6 of 12 estimates were revised higher, suggesting a year-over-year improvement of 17.6%.
Attractive Valuation
Melco Crown Entertainment currently trades at a forward price/earnings (P/E) ratio of 22.3x and has a price to sales (P/S) multiple of 2.7x, which are both at a premium to the peer group averages.
However, the valuation is attractive on a price to book (P/B), price/earnings to growth (PEG) and return on equity (:ROE) basis. The stock currently trades at a forward P/B of 3.11x, a 3.7% discount to the peer group average.
The PEG ratio comes in at 0.78x, a 31.6% discount to the peer group average of 1.14x. Moreover, it has a trailing 12-month ROE of 12.9%, which is slightly above its peer group average of 12.4%, suggesting efficient reinvestment of earnings compared to its peer group.