Can Melco Crown Keep Putting Money in Your Pocket or is Las Vegas Sands Corp. and Wynn Resorts Ltd. a Better Bet?

Source: Melco Crown

For investors who held shares of Melco Crown Entertainment (NASDAQ: MPEL  ) , May 9, 2014 was a great day. The previous day the company reported its latest financial results after the market close. After processing the results, shares of the Macau-centered casino operator soared 5% to close at $33.50. Following the obviously solid results, and in spite of the price appreciation, are shares of Melco Crown still attractive or would investors be better off buying shares of Las Vegas Sands (NYSE: LVS  ) or Wynn Resorts (NASDAQ: WYNN  ) instead?

Melco Crown keeps coming up aces
For the quarter, Melco Crown reported revenue of $1.36 billion. Although this performance was inline with what analysts anticipated, it represented an impressive 19% gain compared to the $1.1 billion reported for the year-ago quarter. The company mostly attributed its jump in sales to its City of Dreams resort.

The company's City of Dreams resort, located in Macao, saw its revenue climb more than 28% to $1.1 billion from $836 million in the year-ago quarter as mass-table-game gross revenue rose 44%. These strong results were complemented by the business's Mocha Clubs which saw their revenue climb 16% from $34 million to $39.5 million, but were partially offset by its Altira Macau resort which posted a 13% drop in sales from $265 million to $229.8 million.

Source: Melco Crown

From a revenue perspective, Melco Crown had a strong performance but its profitability was even stronger. For the quarter, the business saw its earnings per share come in at $0.43. In addition to being $0.02 above forecasts, Melco Crown's earnings were 330% higher than the $0.10 it reported in the year-ago quarter. Part of this improvement can be chalked up to revenue growth, but the company also benefited from a 91% reduction in development costs associated with its City of Dreams resort and a $22.1 million gain on the disposal of assets.

How does Melco Crown stack up against its peers?
Over the past five years, the gambling industry has been very kind to Melco Crown. Between 2009 and 2013, the company saw its sales increase 282% from $1.3 billion to $5.1 billion as Macau's gaming industry grew rapidly. This growth rate was significantly higher than those of both Wynn Resorts and Las Vegas Sands.

During this time-frame, Wynn Resorts' revenue rose 85% from $3.1 billion to $5.6 billion while Las Vegas Sands' revenue jumped 202% from $4.6 billion to $13.8 billion. Both companies (especially Las Vegas Sands) have large and growing footprints in the region, but the differences in their revenues compared to that of Melco Crown stem from their different value propositions to consumers. 

MPEL Revenue (Annual) Chart

MPEL Revenue (Annual) data by YCharts

In 2013, Wynn Resorts saw 71.9% of its sales come from the region, roughly the same as the situation two years earlier. In contrast, Las Vegas Sands attributed only 65.3% of its revenue to its operations in Macau, but the company has increased its focus on the region as this figure has risen substantially from 52.4% of sales two years ago.

Although matters should change later this year with the opening of its City of Dreams Manila resort in the Philippines, Melco Crown received 100% of its revenue from Macau during this three-year period. While it is true that this kind of exposure has downside risk in the event that Macau's gambling industry sees a pullback, long-term upside should permit the business an edge in growth over its rivals.

MPEL Net Income (Annual) Chart

MPEL Net Income (Annual) data by YCharts

Even from a profitability perspective Melco Crown's numbers look superior to those of its peer group. Between 2009 and 2013, the casino operator saw its net income rise from a loss of $308.5 million to a gain of $637.5 million. One of the largest contributors to this improvement was the company's selling, general, and administrative expenses, which fell from 17.2% of sales to 5.4%.

Las Vegas Sands enjoyed a similar trend as its net income changed from a loss of $354.5 million to a gain of $2.3 billion. Despite its relatively slow growth, Wynn Resorts also sported a nice improvement in profitability as its net income rose from $20.7 million to $728.7 million.

Foolish takeaway
Based on the data provided, investors shouldn't be terribly surprised that Melco Crown saw its share price rise. On top of matching revenue forecasts and surpassing earnings estimates, the company's metrics over the past few years have been amazing, especially when placed next to those of its peers. While this does not mean that management can continue this trend, it does imply that the company will likely be a very attractive long-term prospect for the Foolish investor.

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  • Report this Comment On May 16, 2014, at 6:24 PM, berg80 wrote:

    Daniel,

    Let me suggest that you spend a little more time doing the DD required to speak authoritatively on your chosen subject matter. Why do I say that you ask?

    "The company's City of Dreams resor, located in Manila, The Philippines, saw its revenue climb more than 28% to $1.1 billion from $836 million in the year-ago quarter as mass-table-game gross revenue rose 44%."

    COD Manila is not open yet. It will not open until late summer, early fall this year.

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