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?
