Despite all of Wall Street's conflict and contention, a fortunate few companies enjoy unanimous support among professional analysts. If the market's movers and shakers all believe these companies will beat the long-term averages, well, surely they will -- right?
Not so fast! With help from the 180,000 members of Motley Fool CAPS, we'll see whether these high-flying favorites deserve analysts' unwavering support.
Today we'll take a look at Chinese casino operator Melco Crown Entertainment
Melco Crown Entertainment Snapshot
|Market Cap||$6.1 billion|
|Revenues, TTM||$4.0 billion|
|1-Yr. Stock Return||(7.8%)|
|Return on Investment||8.2%|
|Est. 5-Yr. EPS Growth||31.7%|
|Dividend and Yield||N/A, N/A|
|No. of Analysts||10|
|CAPS Rating (out of 5)||****|
Source: FinViz.com. TTM = trailing 12 months.
But just because Wall Street loves 'em doesn't mean you have to. Analyst sentiment is only just the jumping-off place for your own research.
Bet on it
Macau gaming revenue in August came close to breaking all-time records for a month as receipts jumped 5.5% from the year-ago period, hitting 26.14 billion patacas, or $3.27 billion, just shy of the biggest-haul-ever record of 26.85 billion patacas realized in October of last year.
Yet as robust as that was, it fell short of analyst expectations of 7% to 9% year-over-year growth. The month got off to a slow start, and though it picked up steam as the weeks progressed, the economic slowdown being felt in China is also impacting the gambling industry. Macau's second-quarter GDP experienced a sharp drop from the first, falling from 18.4% to 7.3%.
Laying the foundation for growth
Melco experienced a surprising 2% drop in revenues in the second quarter despite the strong showing by City of Dreams casino, which saw revenues rise 12.6%, generating a 22% jump in adjusted EBITDA. Rather, it was the poor showing of its operations at Altira Macau, which suffers from a poor setting on the northern end of Macau's Taipa Island -- which explains why Melco is so thankful the government granted it the necessary permits to restart construction on its Studio City casino in Cotai.
That promises to offer more access to gamblers coming to the island and is where its City of Dreams casino is located. Yet if the Cotai Strip is where the action is these days, then Las Vegas Sands
Both Wynn Resorts
The risk for investors in Melco is its dependence on City of Dreams. As Macau goes, and specifically Cotai, so will go the gambling house. It is working to diversify its Asian assets by entering into a joint venture in the Philippines, but that project is a long way away from completion as the company only just signed a memorandum of agreement with its partner to develop it.
At less than 15 times earnings, it offers a discount to most of its rivals. Sands goes off at 24 times earnings, Caesars Entertainment
Debate rages over whether China is in for a harsh landing, though I doubt even it can ignore the laws of economics for very long. Spending as it has, the bill will come due sooner or later. However, rated Melco Crown Entertainment to beat the Street going forward. While other casino operators may also offer compelling opportunities, tell me in the comments box below if you agree Melco is a good bet.
Agree to disagree
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Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.