Is Melco Crown Worth A Double Down?

Melco Crown (Nasdaq: MPEL  ) has been riding the wave of growth in Macau and in particular the Cotai Strip to newfound profitability. As one of the few casinos currently open in Cotai, Melco has seen significant improvement as Macau trends to that location, boosting all casinos in the area. But is it time to buy Melco with Las Vegas Sands (NYSE: LVS  ) posting incredible numbers and Wynn Resorts (Nasdaq: WYNN  ) steadily counting its winnings?

Let's start with what we're paying for. Melco has a market capitalization of $3.16 billion and long-term debt of $1.64 billion, giving us an enterprise value of $4.8 billion.

Adjusted EBITDA was $299.3 million in the past 12 months, and close to half of that came in the last quarter as its City of Dreams picked up its performance. So enterprise value/adjusted EBITDA is 16.0, right around what Las Vegas Sands was trading at when I asked if it was too hot to handle. The 16.0 ratio is also down from 22.65 before the latest quarter, so as performance picks up this stock is looking a lot more attractive.

A question of growth
Unlike Las Vegas Sands and Wynn, Melco Crown doesn't have more growth waiting in the form of new casinos. Growth will have to come in the form of organic growth at Altira Macau and City of Dreams in Macau, acquisitions, or developments with a long lead time. So we can't give quite the same premium, but it means the company can pay off debt instead of spending cash on new casinos if it wants to.

My Foolish colleagues over at Motley Fool Global Gains wonder if management changes will hurt the company and I've questioned underperforming margins versus its competitors. But we saw major improvements in the third quarter after management changes, so I have confidence Melco will continue to post improvements going forward with the help of its location on the Cotai Strip.

I have enough confidence in the company to join the 1,244 CAPS members who have given Melco Crown an outperform rating on CAPS. Do you think this stock is ready for a big bet?

Hit or stay?

Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

Melco Crown Entertainment is a Motley Fool Global Gains recommendation. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 30, 2010, at 3:48 PM, aroysmith1 wrote:

    Fools is the perfect name for you, and 1244 other Fools. You and your caps buddies must own a lot of stocks in MPEL, because you keep coming back to this stock. You are not getting your push for MPEL to other investors (they are not buying it). If you like $, buy either LVS or Wynn. I know there are people who specialize is cheap stocks and there are reasons why cheap stocks are cheap (because they SUCK). The stock has been going down hill for 5 years. Since July of 2008, it's been trading around $4-6, while I have

    have seen LVS more than triple since March. And LVS has a cap 2 stars, and I believe Wynn has only 2 stars.

  • Report this Comment On November 30, 2010, at 10:32 PM, TMFFlushDraw wrote:

    @aroysmith1

    If I'm trying to beat the market, yes I think MPEL is a good play.

    If you think LVS and WYNN are better buys then why not give an outperform call on CAPS?

    As for my thoughts on those companies you may want to check out any of the nine links in the article to check out how long I've been high on those stocks.

    I bought my last batch of LVS at around $2 so I don't think I can be accused of being late to this bandwagon.

    Travis Hoium

  • Report this Comment On December 02, 2010, at 2:19 AM, aroysmith1 wrote:

    why buy a stock that is being beating badly by it's two other competors in the same industry. I can understand you wanting to beat the market, we all do, but why bet on third place. A good horse man bets on the winner. There is no growth in MPEL. It has one old casino and one new one. That's it. They have a lot cash, but outside of paying down debt, there is no other way to enhance the stock price for investors. Do you think MPEL can compeat with either LVS of WYNN for the high rollers (that's were the big money is). I can never see them out performing either LVS or Wynn. Nice call on LVS. They were near bankrupcy then. Adelson put a few billion of his own money in to save the company. It's not the same story with MPEL. Keep betting on a winner.

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