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What Does the Future Have in Store for Melco?

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Last week, shares of Melco Crown Entertainment Limited (NASDAQ: MPEL  ) , the $19.15 billion market capitalization casino operator, rose around 3% following its earnings release stating that the company exceeded analyst expectations on both revenue and earnings per share. However, even with the earnings beat, is the company an attractive investment for the Foolish investor or has all the upside been priced in? To find out which scenario is the case, I decided to delve into the company a bit more and see how it stacks up to competitors like Las Vegas Sands (NYSE: LVS  ) , Wynn Resorts (NASDAQ: WYNN  ) and Caesars Entertainment (NASDAQ: CZR  ) .

Earnings beat
According to Melco Crown's earnings release, the company exceeded analyst expectations in regard to its revenue, which came in at $1.25 billion. This represents a 23.9% increase from the $1.01 billion the company reported during the same period a year ago, and it was 8.9% higher than the $1.15 billion Mr. Market expected. On top of beating on the top line, the company also reported that its net income rose by 71% from $104.9 million last year to $179.4 million this year. At $0.33 in earnings per share, this exceeded the market's expectation of $0.25 per share.

According to the company, the primary driver behind this phenomenal growth was a significant increase in its mass market table games operations, most of which took place in its City of Dreams resort. In this particular casino alone, the company saw its mass market table games drop rise by 36% from $889.8 million to $1.21 billion.

How does it stack up to other casino giants?
Although the company operates out of Hong Kong with casinos located in places like Macau and the Philippines, its fundamentals should be measured against its other large peers, irrespective of location. In an effort to conduct a comparable analysis, I compared the company to three peers in regard to revenue growth and net income growth.

First, let us look at Caesars. From 2008 through 2012, the company saw its revenue decline by a painful 15.2% from $10.13 billion to $8.59 billion as the company has had a difficult time attracting and retaining a sizable customer base. However, due to the effects of impairments, the company saw its net loss decrease from $5.2 billion in 2008 to $1.5 billion in 2012.

In comparison, Wynn saw its revenue increase by an impressive 72.5% over the same time horizon from $2.99 billion to $5.15 billion. As management has been able to capitalize on the company's improved market presence, net income has increased by 138.5% from $210.5 million to $502 million, results that make it appear to be far stronger than Caesars.

While the revenue and net income growth of Wynn is nice, it fails when placed next to Las Vegas Sands. Between 2008 and 2012, Las Vegas Sands saw its revenue rise by 153.6% from $4.39 billion to $11.13 billion, enough to dethrone Caesars as the largest in terms of revenue in the group. In the process, the company saw its net income rise from -$163.6 million to $1.5 billion.

Finally, we arrive at Melco. While Caesars has exhibited poor performance over the past few years and both Wynn and Las Vegas Sands have grown at nice clips, Melco managed to blow them all away. From 2008 through 2012, Melco was able to achieve astonishing revenue growth of 188%, which allowed revenue to rise from $1.42 billion to $4.08 billion. Furthermore, its net income has risen from -$2.5 million to $417.2 million. With a net profit margin of 10.2%, Melco sits a bit behind Las Vegas Sands in terms of profitability, but slightly ahead of the 9.9% margin of Wynn.

Foolish takeaway
It's not always easy to single out a company and say, "this is definitely going to perform the best in the future!". What is fairly easy is determining which company appears to have the greatest chance of success. As the fastest-growing company of the four that were profiled in this article, and as the one with the second highest level of profitability as demonstrated by its net profit margin, it would appear that Melco may very well be the best long-term investment.

However, at 45.8 times 2012's earnings and 28.5 times its expected earnings for 2013, the company is fairly expensive, especially when stacked up against Las Vegas Sands which trades at 38.1 times 2012's earnings and 23.5 times 2013's expected earnings. It is for this reason that, while the company looks to be the most attractive long-term, the price/value disparity between it and Las Vegas Sands may make it worthwhile to accept a company of just slightly lower quality so as to have a larger margin of safety and potentially higher returns should business continue to improve.

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