Source: Melco Crown
May 8, 2014 is bound to be a big day for investors owning shares in Melco Crown Entertainment (MLCO -1.28%). Before the market opens, Melco Crown's management team is due to report the company's earnings for the first quarter of its 2014 fiscal year. After seeing rivals like Las Vegas Sands (LVS -0.92%) and Wynn Resorts (WYNN -1.16%) beat analyst expectations in their own recent earnings releases, can the company follow suit and show continued signs of long-term growth?
Mr. Market's high expectations
For the quarter, analysts expect Melco Crown to report revenue of $1.36 billion. If this forecast turns out to be accurate, it will mean that the company's sales have grown 19% year over year. While this may seem like an unlikely increase in sales given how large the company is, competitors have done quite well during the first quarter.
Las Vegas Sands, the largest of the three casino operators, reported a 21.5% jump in sales for the quarter, from $3.3 billion to $4 billion, as its large exposure to Macau's economy propelled revenue higher. Wynn Resorts also did well for the quarter, seeing revenue climb 9% from $1.38 billion last year to $1.51 billion this year. This increase in sales for the casino operator came from a 14% jump in sales in its Macau business, partially offset by a decline in domestic sales.
Source: Melco Crown
From an earnings perspective, Mr. Market's hopes for Melco Crown are even bigger. If analysts are correct in their assumptions, the casino should report earnings per share of $0.41, 310% above the $0.10 management reported in the same quarter last year. In part, this increase in profits will likely be due to the higher revenue Mr. Market expects; but it will also be the result of lower operational expenses and the absence of the $50.9 million loss on the extinguishment of debt that the company incurred in the first quarter of 2013.
But how does Melco Crown look over the long run?
While it may be tempting to invest in a company with the hopes that analysts are right and shares will rise, the more important way to look at a company is to analyze how it's performed over an extended period of time. Over the past few years, Melco Crown has demonstrated phenomenal growth. Between 2009 and 2013, the company's revenue soared 282% from $1.3 billion to approximately $5.1 billion, while its net loss of $308.6 million morphed into a gain of $637.5 million.
Melco Crown revenue (annual) data by YCharts
This increase in revenue came from the company's exposure to Macau, a booming market for casinos. In the first four months of 2014, the industry's gross revenue soared 17.5% to $16.7 billion from the $14.2 billion it enjoyed through April 2013. Moving forward, Melco Crown will cease to be a pure play on the region, as management has decided to open City of Dreams Manila, a resort in the Philippines that will market the business' first foray into international locations.
Source: Gaming Inspection and Coordination for Macau
This meteoric rise in revenue and net income is impressive, even when placed next to its peers. Over the same time frame, Las Vegas Sands saw its revenue jump 202% from $4.56 billion to $13.77 billion, while its net income grew from a loss of $354.5 million to a gain of $2.3 billion.
Although not bad by any means, Wynn Resorts' revenue rose a more modest 85% from $3.05 billion to $5.62 billion, while net income increased 3,420% from $20.7 million to $728.7 million. Like Melco Crown, both Las Vegas Sands and Wynn Resorts have a substantial (and growing) footprint in Macau.
Foolish takeaway
Based on analyst estimates, it looks like shareholders expect a lot from Melco Crown. Using the company's historical data and the fact that other big players in the market have done quite well for themselves, it's not unreasonable to expect a nice uptick in revenue and earnings, but nothing's certain.
For the Foolish investor, the smartest way to play the situation is to assess Melco Crown's long-term results and make an investment decision from those findings. Of the three, the company has done far better than its rivals, especially Wynn Resorts. While this doesn't mean that management can continue this trend, it does suggest that the company should prove to be an interesting and potentially profitable prospect for market participants.
