On Monday, Seaport Global Securities started coverage on Melco Resorts & Entertainment Limited (NASDAQ:MLCO), issuing a Buy rating and setting a price target of $10.00. The firm projects Melco Resorts to maintain a stable market share in 2024 with a slight decline anticipated in 2025.
This forecast is based on increased competition as other properties expand and focus on premium customers. Despite this, Melco's historical strength in the premium mass segment in Macau and its strategic adoption of smart digital tables are expected to drive growth.
The company's high leverage, with consolidated leverage of five times net debt to expected 2024 EBITDA, is noted as a point of focus. Melco Resorts is anticipated to prioritize debt management with its free cash flow after meeting capital expenditure needs. The leverage is seen as providing potential for increased earnings in a growing financial model.
Seaport Global anticipates a 24% net revenue growth and 30% EBITDA growth for Melco in 2024, followed by a high single-digit percentage growth in 2025. Earnings per share (EPS) are expected to turn positive in 2024, improving from a loss of $0.75 to a gain of $0.28, with over 110% growth projected for 2025.
The return on invested capital (ROIC) is expected to be 12% in 2024 and increase to 16% in 2025, which is above the company's cost of capital but below the average for other Macau operators, except for SJM.
The firm's valuation of Melco Resorts implies a multiple of 9.2 times the estimated 2024 EBITDA and 8.4 times the estimated 2025 EBITDA. This valuation is below the average for the group of Macau stocks that Seaport Global covers. The positive outlook is underpinned by Melco's expected revenue and EBITDA growth, along with the potential benefits from the phase 2 expansion of Studio City and strategic marketing initiatives.
InvestingPro Insights
Investors considering Melco Resorts & Entertainment Limited (NASDAQ:MLCO) will find additional context in the real-time data and InvestingPro tips. The company's aggressive share buyback program and expectations for net income and sales growth this year align with the positive outlook from Seaport Global Securities. Notably, Melco is trading near its 52-week low, which may present a buying opportunity for investors who believe in the company's recovery and growth prospects.
Key metrics from InvestingPro show Melco with a market cap of approximately $3.04 billion and a dramatic revenue growth of nearly 179.65% over the last twelve months as of Q4 2023. Despite not being profitable over the last twelve months, analysts predict that Melco will turn a profit this year, which could be a pivotal point for the company's financial performance.
While Melco does not pay a dividend, suggesting a reinvestment of earnings into the company, it trades at a high EBIT valuation multiple. Investors should note that there are over 6 additional InvestingPro Tips available for MLCO, which can be accessed for more in-depth analysis. For those interested in a deeper dive, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.
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