Melco Resorts Cut to Hold at Texas Capital on Macau Revenue Uncertainty

Shares of Melco Resorts & Entertainment (NASDAQ: MLCO) slipped Friday after the stock was downgraded to “hold” from “buy” by Texas Capital analyst David Bain.

In midday trading, shares of the City of Dreams operator fell 2.31% on volume more than double the daily average, extending a slide that has seen the Macau casino stock shed 48.5% of its value over the past year.

Texas Capital analyst David Bain cited a “strong variance” between his third- and fourth-quarter EBITDA forecasts for Melco against consensus expectations. He also pointed to sluggish Macau gross gaming revenue (GGR) and China’s retroactively enforced tax on offshore trust assets as key catalysts for downgrading Lawrence Ho’s company to “Hold.”

Bain trimmed his price target on the stock to $5.50 from $8.00, though the revised target still implies a potential upside of more than 30% from current trading levels.

Melco Has a Macau Problem

As with other Macau casino operators, Melco is being weighed down by broader weakness in the special administrative region (SAR).

Bain noted that when September GGR in Macau is calculated on a daily run-rate basis, it marked the weakest month for concessionaires since January 2025. He added that channel checks from mid-October indicate no immediate rebound is in sight.

Compounding the problem for Macau operators, visitation from mainland China continues to rise, but a smaller percentage of those travelers are spending money on gaming floors upon arrival.

“We believe China macro, including prolonged deflationary pressures, sticky property market weakness and lower employment have had an impact,” adds Bain. “Checks also cite a potential GGR impact from China’s July 2026 20% tax on assets in offshore trusts, which has triggered restructuring and some capital liquidation — the rules are applied retroactively to the early 2020’s.”

The Promotional Problem

In Macau, Melco’s core customers are premium-mass bettors and, to some extent, VIPs. In sanguine operating environments, those are compelling demographics to target, but with the junket system all but dead, competition for those gamblers is fierce.

That shift has triggered a sharp rise in promotional activity across the market, as operators spend aggressively to draw players into their properties. These elevated customer acquisition and retention costs could cap near-term margin expansion for operators across the enclave.

“Player reinvestment remains elevated, and based on our checks, one of six total concessionaires recently increased its promotional levels,” Bain concluded. “While we do not see the addition as changing the already elevated comp spend landscape, it causes us to be less optimistic promotional levels will decline over the next several quarters.”