Melco Resorts Has ‘Ammunition’ for 2024 Macau Growth, Says Analyst

Posted on: December 18, 2023, 03:55h. 

Last updated on: December 19, 2023, 11:26h.

Melco Resorts & Entertainment (NASDAQ: MLCO) has the ingredients to outgrow rival Macau concessionaires in 2024.

Melco Resorts
Melco Resorts CEO Lawrence Ho in a 2017 interview in Macau. JPMorgan is bullish on the stock as a 2024 Macau idea. (Image: Bloomberg)

That’s the take of JPMorgan analyst Joseph Greff, who recently met with Melco CEO Lawrence Ho and CFO Geoff Davis. It’s believed that was the City of Dreams operator’s first meeting with U.S.-based investors in some time. Greff believes Melco has the “ammunition” to deliver superior growth rates in 2024 relative to its rivals in Macau.

(Melco has) easier year-over-year comparisons than peers (1Q and 2Q23 performance lagged the market a bit,” observed the analyst. “The ability to generate incremental growth from Phase 2 expansion at Studio City (official grand opening launch on February/March 2024.”

Greff rates the stock “overweight” with a $10 price target, which implies an upside of 15.7% from Monday’s close of $8.64. Although Melco is higher by 21.86% over the past month, the stock is down 24.87% year to date and resides 40.23% below its 52-week high.

Melco Resorts Has Solid Balance Sheet

Melco’s 2023 struggles have the stock trading at deeply discounted multiples, a status shared by its Macau casino operator brethren. The shares are as cheap as they’ve been in over a year.

Still, Ho’s gaming company has a strong cash position. At the end of the third quarter, Melco had $1.2 billion in cash on hand, not including restricted cash. That implies some value because the operator’s market capitalization is $3.1 billion, perhaps indicating the investment community isn’t giving the gaming company the credit it deserves for its cash stockpile.

Additionally, that sturdy balance sheet indicates Melco can service its liabilities for the foreseeable future — a relevant point when considering Macau concessionaires’ debt ballooned due to the coronavirus pandemic. Melco has no debt coming due before 2025.

“We continue to anticipate debt pay down (both through its excess cash balance and cash flow from operations) and see its non-Macau operations as steady,” noted Greff.

Mass, Premium-Mass Players Could Boost Melco

In Macau, Melco could benefit in 2024 from ongoing vibrancy in the mass and premium-mass segments, leveraging increased marketing and special events to lure those players to the particular administrative region (SAR). Fortunately, those bettors and their VIP peers don’t appear worried about lethargy in the broader Chinese economy.

Players seem to be a lot less concerned than investors about the current state of the [Chinese] economy and the recent surge of respiratory illness in China, and they… demonstrate their still-resilient luxury spending behavior,” according to Citi analysts.

Melco also offers investors the benefit of geographic diversity, as it operates in the Philippines and recently opened Europe’s largest casino in Cyprus.