Melco Resorts Stock Poised for Major Upswing, Analysts Say


New York, July 11, 2024 – Melco Resorts & Entertainment Ltd ADR (NASDAQ: MLCO), a key player in the Macao gaming industry, is set for a strong recovery, driven by strategic developments and an optimistic long-term outlook. According to a recent Morningstar Equity Analyst Report, Melco’s stock, currently listed at $6.50, is significantly undervalued, with a fair value estimate of $11.60.

Melco Resorts is strategically positioned to benefit from the promising growth trajectory of the Macao gaming market, propelled by the rising middle class in China and enhanced infrastructure connecting Macao to mainland China. The ongoing development of neighboring Hengqin Island, designed to support Macao’s growth, and the completion of new infrastructure projects such as the Hong Kong-Zhuhai-Macao bridge, increase Macao’s accessibility and tourism potential.

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As one of only six licensed casino operators in Macao, Melco holds a robust market position, particularly in the premium mass segment. The launch of Studio City phase 2, with 900 new hotel rooms, demonstrates Melco’s commitment to expanding its market share and sharpening its competitive edge with innovative offerings.

Despite past challenges like strict COVID-19 restrictions and regulatory changes, Melco is on the path to recovery. The company reported a 3% increase in hold-adjusted EBITDA for Q1 2024, reaching $314 million, approximately 93% of its 2019 level. This financial stability is further reinforced by a recent $250 million debt reduction and refinancing activities, which strengthen Melco’s liquidity profile.

Melco’s revenue is projected to grow at an 8% compound annual growth rate (CAGR) between 2023 and 2033, driven by the easing of COVID-19 restrictions, new infrastructure improvements, and the ongoing ramp-up of Studio City phase 2. Adjusted EBITDA margins are expected to rise from 28% in 2023 to 29% in 2033, reflecting a favorable shift towards higher-margin mass business.

Melco’s ESG Risk Rating is classified as Medium, indicating manageable risks in environmental, social, and governance aspects. The company is making strides in increasing its non-gaming business, aligning with Macao’s broader economic diversification goals. Investments in luxury hotel rooms, an indoor/outdoor water park, and state-of-the-art MICE (Meetings, Incentives, Conferences, and Exhibitions) facilities at Studio City phase 2 highlight Melco’s commitment to sustainability and long-term growth.

However, despite the positive outlook, Melco faces several risks. Regulatory uncertainties, such as stricter license-renewal terms and increased gaming taxes, pose potential challenges. The shift from junket clients to premium mass patrons, while advantageous, may necessitate higher reinvestment to attract and retain this segment. Additionally, stricter enforcement of government policies and increased competition from regional markets like Japan could impact Melco’s market position.

Melco Resorts & Entertainment Ltd is well-positioned to capitalize on Macao’s growth potential and the recovery of the global tourism industry. The company’s strategic initiatives, financial resilience, and focus on innovation provide a solid foundation for sustained growth. Investors may find the current undervaluation of Melco’s stock an attractive opportunity, given the company’s strong market position and favorable long-term prospects.