Melco (MLCO) Hits 52-Week High on NUWA Launch Announcement

Shares of Melco Resorts & Entertainment Limited MLCO hit a 52-week high of $29.50 on Dec 27, before closing a tad lower at $29.23.

The company’s shares have charted a solid trajectory in recent times, appreciating over 83.9% year to date, ahead of the industry’s gain of roughly 44.8%.

Notably, the company has witnessed a 2.3% jump in share price against the industry’s loss of 0.6% since the day it announced the launch of its luxury hotel brand, NUWA. Melco will launch NUWA in Macau and Manila on Jan 16, 2018.  The brand launch is in line with the company’s plan to present phase III of City of Dreams Macau in the second quarter of 2018.

Let’s see how the NUWA launch may boost the company’s performance.

City of Dreams Well Poised on New NUWA Luxury Hotel Brand

City of Dreams, Melco’s flagship property, is under the third phase of development and has been raking in significant revenues. In fact, in the first nine months of 2017, City of Dreams witnessed 2.6% year-over-year growth in revenues per available room (RevPAR). In the same time frame, occupancy per available room increased 200 basis points (bps) from the year-ago period.

Melco Crown Entertainment Limited Revenue (TTM)

Melco Crown Entertainment Limited Revenue (TTM) | Melco Crown Entertainment Limited Quote

We believe that the addition of NUWA will significantly strengthen Melco’s operations in City of Dreams. The company believes that an increase in luxury hotel room inventory will bode well for the property's gaming operations. Further, growth at the property will be driven by enhanced guest experience.

Development Plans Boost Investor Confidence

In this phase of development, Melco plans to open The Morpheus Hotel, which will add almost 800 luxury hotel rooms and villas to the property. Additionally, the company plans to rebrand The Count:Down into a new hotel concept that will enrich guest experience in City of Dreams.

Melco has been actively responding to a rapidly evolving market and has capitalized on significant VIP business and cash flow with the expansion of its gaming segment. These new additions to City of Dreams will help Melco continue with its core business strategy of pursuing quality and in turn driving traffic.

Analysts Optimistic As Well

For 2018, two estimates have gone higher for Melco while one has moved lower in the last 60 days. The trend has been pretty favorable too, with estimates rising from 94 cents a share 60 days ago to $1.05 per share currently, marking an increase of 11.7%. This shows that analysts are positive on the stock’s upside potential, which is expected to be driven by the robust performance of City of Dreams.

Zacks Rank and Stocks to Consider

Melco carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the industry are Churchill Downs Incorporated CHDN, Wynn Resorts, Limited WYNN and Las Vegas Sands Corp. LVS. While Churchill Downs sports a Zacks Rank #1 (Strong Buy), Wynn Resorts and Las Vegas Sands carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Current-year expected earnings growth rate for Churchill Downs, Wynn Resorts and Las Vegas Sands is expected to be 26.4%, 58% and 23.5%, respectively.

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