Melco Stock Slumping, But Earns Praise as Pandemic Rebound Play

Posted on: July 15, 2021, 12:56h. 

Last updated on: July 15, 2021, 02:23h.

Todd Shriber @etfgodfather Read More

Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Amid a slow recovery in its marquee market of Macau, one stymied by a recent surge in coronavirus cases throughout Asia, Melco Resorts & Entertainment (NASDAQ:MLCO) is in a funk.

While shares of the City of Dreams operator are off 6.63 percent over the past month and 15.69 percent year-to-date, some analysts remain bullish on the Asian casino giant.

In a note to clients out today, Bernstein analysts point out Lawrence Ho’s company is well-positioned to capitalize on a recovery in the world’s largest casino center, citing the addition of a new room capacity at the Studio City integrated resorts as a long-term catalyst for Melco stock.

Dark clouds and negative sentiment will surely pass,” said the Bernstein analysts. “The long-term structural story for Macau driven by mass and premium mass growth remains very strong, and the catalysts of meaningful recovery are in the foreseeable future.”

For its part, Melco sees value in its shares, announcing a $500 million buyback plan last month. That scheme applies to both its Hong Kong- and US-listed shares.

Long Way to Go for Melco Stock, Rivals

With the pace of recovery in Macau frustrating executives and investors alike, some of the related equities remain well off pre-pandemic highs.

Melco stock is one of those offenders, residing more than 35 percent below its pre-coronavirus high. Among rival operators, only Wynn Macau is further removed from its 2019 high. That could be a sign Melco is a value play.

“Over the last few months, investor fatigue has clearly set in. Investors have grown impatient with waiting, and bearish views seem to dominate thinking. The situation today reminds us very much of late 2015 when prevailing thought was that Macau would never recover — this was the perfect timing to invest in Macau, which then experienced a multi-year bull run,” according to Bernstein.

The average analyst price target on Melco’s Nasdaq-listed stock is $21.44, implying upside of 37 percent from the July 14 close.

Pessimism Could Breed Positivity

With travel with Hong Kong — a vital thoroughfare for gamblers arriving in Macau — still off the table, and Las Vegas and US regional casinos leading the global gaming recovery, plenty of negativity is baked into stock prices of Macau concessionaires. However, that scenario could give way to sunnier days for Melco investors.

“The pessimistic market offers a very good entry point for investors to get exposure into top-tier global gaming operators that have strong footprints in Macau. At the current price levels, we believe the risk-reward looks very attractive,” adds Bernstein.

Melco’s US stock would need to more than double to reclaim its all-time high, set in April 2018.