Melco Crown Entertainment Limited MPEL is slated to report third-quarter 2015 results on Nov 5, before the opening bell. The company posted a negative earnings surprise of 11.11% in the last reported quarter. In fact, Melco Crown's earnings have missed the Zacks Consensus Estimate in all the trailing four quarters and it has an average negative surprise of 15.09%. Let’s see how things are shaping up for this announcement.
Why a Likely Positive Surprise?
Our proven model shows that Melco Crown’s is likely to beat earnings this time because it has the right combination of two key components.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +10.00%. This is meaningful and indicates a likely earnings surprise.
Zacks Rank: Melco Crown has a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1, 2 and 3 have a significantly higher chance of beating earnings. Meanwhile, the Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
The combination of Melco Crown’s Zacks Rank #3 and +10.00% ESP makes us confident of an earnings beat.
What's Driving the Better-Than-Expected Earnings?
Melco Crown’s non-gaming business mitigates the effects of a slowdown in the gaming business in Macau to some extent. In fact, non-gaming business revenues have been growing year over year since 2014. With a number of the company’s properties deriving revenues from non-gaming sources like rooms and food and beverages, we expect revenues to improve in the soon-to be reported quarter also. Additionally, City of Dreams Manila that opened in Feb 2015 would aid the top line as a center of solid entertainment, accommodation and regional and international culinary offerings as it did in the second quarter.
However, revenues would continue to be hurt in the soon-to-be reported quarter due to the anti-graft corruption drive taken by the Chinese government as it has been doing over the past few quarters. Revenues in Macau, a key operating region for Melco Crown plunged in double digits in all three months of the quarter due to the anti-graft corruption drive taken by the Chinese government.
The company’s cost control efforts including tight control on marketing costs, player reinvestment and payroll costs are expected to aid profits in the to-be reported quarter.
Other Stocks to Consider
Here are some companies in the consumer discretionary sector that investors may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Mohawk Industries Inc. MHK has an Earnings ESP of +1.33% and a Zacks Rank #1 (Strong Buy).
Townsquare Media, Inc. TSQ with an Earnings ESP of +2.50% and a Zacks Rank #2 (Buy).
Scripps Networks Interactive, Inc. SNI with an Earnings ESP of +1.03% and a Zacks Rank #2.
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