Melco Resorts Stock Stung By Texas Capital Downgrade

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 are off 2.31% on volume that’s more than double the daily average, extending a slide in which the Macau casino stock shed 48.5% of its value over the past year.

Bain cites “strong variance” between his third- and fourth-quarter earnings before interest, taxes, depreciation and amortization (EBITDA) forecasts on Melco against consensus expectations as well as slack Macau gross gaming revenue (GGR) and a new Chinese tax on offshore trust assets as among the reasons for his downgrade of Lawrence Ho’s company.

He trimmed his price target on the stock to $5.50 from $8, though the new target implies potential upside of more than 30% from where the shares trade at this writing.

Melco Has a Macau Problem

As is the case with other Macau casino stocks, Melco is being drubbed because fundamentals in the special administrative region (SAR) are poor.

As Bain points out, when Macau September GGR is extrapolated out over a daily basis, it was the worst month for concessionaires since January 2025. The analyst adds that mid-October channel checks indicate no material positive turn is at play.

Another problem for Macau concessionaires is that while visitation to the enclave attributable to residents of mainland China is trending higher, many of those tourists aren’t gambling 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’s prompted a spike in promotional activity, meaning operators are spending more to lure bettors to their venues. Those elevated expenditures could cap the rebound potential of Macau casino names, including Melco.

“Player reinvestment remains elevated, and based on our checks, one more of six total concessionaires recently increased its promotional levels,” concludes Bain. “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.”