Melco Sees Value in Slumping Stock, Reveals $500 Million Buyback

Posted on: June 3, 2021, 01:10h. 

Last updated on: June 3, 2021, 01:44h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Melco Resorts & Entertainment (NASDAQ:MLCO) is a fan of its stock, as the gaming company said it will repurchase $500 million worth of its own shares.

melco buyback
Melco CEO Lawrence Ho. The company announced a $500 million share buyback plan. (Image: South China Morning Post)

The Hong Kong-based casino operator made the announcement in a Form 6-K filling with the Securities and Exchange Commission (SEC). The new buyback scheme replaces one set to expire in November and goes into immediate effect.

The new program permits the company to purchase up to $500 million of its ordinary shares and/or its American depositary shares over a three-year period commencing June 2, 2021,” according to the filing. “Purchases under this authorization may be made from time to time on open market at prevailing market prices.”

Melco stock’s primary listing is on the Hong Kong Stock Exchange. Its Nasdaq listing represents the aforementioned American depositary shares.

Melco Stock Could Be Good Deal Here

It doesn’t overtly say as much in the regulatory document, but Melco could be sensing value in its shares. Hence, the buyback announcement.

The operator of Altria Macau and City of Dreams venues on the Cotai Strip and Manila has seen its US-listed stock tumble nearly 28 percent from its early March highs. The name is off 11.24 percent over the past month. Those figures could indicate the operator sees value in its equity, and that it’s looking to scoop up shares ahead of Macau recovering to 2019 levels.

Broadly speaking, companies across all industries are criticized for announcing buyback programs when share prices are high and eschewing those plans when stock prices are depressed. Obviously, Melco is doing the opposite, and it could work in favor of patient investors.

It will be interesting to see how much of the $500 million the casino operator spends on repurchasing its shares, because no company is obligated to exhaust the entire amount of a proposed buyback plan. Additionally, some research firms are concerned about Melco’s debt burden. But the company’s balance sheet is in decent shape, with almost $2 billion in cash.

Positive Signal

At the height of the coronavirus pandemic last year, nearly all US-based gaming companies that were dividend payers at that time suspended or scrapped those payouts. They also shelved buyback plans in an effort to conserve capital.

For its part, Melco wasn’t a dividend offender, and today’s the stock yields 2.84 percent — 42 basis points ahead of the MSCI Hong Kong Index.

As for potential looming catalysts for Melco stock, those would include a credible recovery in Macau taking hold in the second half of this year. It also hopes for favorable news emerging from Yokohama. That’s where the company is one of two operators vying to partner with the city in its quest to land one of Japan’s first three integrated resort permits.