Ahead of the Bell: Analyst upgrades Melco Crown

Market confusion over Melco Crown Entertainment Ltd.'s new City of Dreams casino in Macau provides a buying opportunity, a Deutsche Bank North American analyst said Thursday as she upgraded the company to "Buy" from "Hold."

Karen Tang said investors appear to be disappointed by City of Dreams' early market share. But investors are not accounting for the volatility of VIP play, "which depends on luck," the analyst wrote in a client note.

The $2.1 billion casino complex _ which has three hotels, more than 500 gambling tables, Las Vegas-style shows, an upscale shopping mall and restaurants _ opened in Macau on June 1. Macau is the only place in China with legalized gambling.

After adjusting for VIP hold _ a measure of how much the big gamblers win _ Tang forecast Melco Crown, a developer and owner of Macau casino resorts, garners 16 percent to 18 percent market share _ which meets expectations.

"Customer traffic at City of Dreams has been good. But VIP hold has been unfavorable," Tang said.

Wynn Resorts Ltd. had a similar experience in 2006 when it open its Wynn Macau resort, but was able to bounce back once VIP hold regulated, Tang explained. The analyst anticipates Melco Crown will likely follow the same path.

Tang increased Melco Crown's price target to $6.50 from $6 after boosting her 2010 earnings before interest, taxes, depreciation and amortization estimate by 5 percent to $421 million.