On Jan 14, 2015, Zacks Investment Research downgraded Melco Crown Entertainment Limited (MPEL) to a Zacks Rank #5 (Strong Sell).
Estimates for the company have been declining over the last 60 days. The downward revisions are the result of consistent sluggish revenues in Macau since Jun 2014 and a bleak revenue outlook for Jan 2015. This leading casino operator earns a better part of its revenues from Macau and therefore any movement in the region catches investor attention.
Why the Downgrade?
Gambling revenues in Macau have been declining consistently over the past seven months due to lower traffic. After declining in single digits for three consecutive months beginning June, revenues declined 11.7%, 23.2%, 19.6%, 30% in Sep, Oct, Nov and Dec 2014, respectively.
As a result of this consistent decline, gambling revenues declined 2.6% year over year in 2014. Per analysts, gambling revenues in Macau, the only destination in China where gambling is legal, have fallen annually for the first time since casinos were liberalized in 2001.
The slump reflects a slowdown in Macau as a result of high-stake gamblers curtailing spending amid a cooling Chinese economy. Also, the nationwide crackdown on corruption in China has compelled Macau officials to impose restrictions on high rollers in order to stop billions of dollars from being siphoned off illegally from mainland China to Macau. Meanwhile, political unrest, a smoking ban on mass market gaming floors and pro-democracy demonstrations in Hong Kong have compounded woes.
All these have reduced footfall at casinos in Macau, thereby hurting the results of the company. Owing to this, Melco Crown has missed the Zacks Consensus Estimate in the past two quarters and lost 35% since Jun 2014 when the region began facing troubles.
Unfortunately, the worst is not over and gaming revenues for January are expected to decline in double digits again, per most of the analysts. Other companies that are bearing the brunt of these headwinds include Wynn Resorts Ltd. (WYNN), Las Vegas Sands Corp. (LVS) and MGM Resorts International (MGM).
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