Melco Crown Entertainment Limited (MPEL) is set to report fourth-quarter 2014 results on Feb 12, before the market opens. Last quarter, the company posted negative earnings surprise of 3.45%. We note that the company has posted negative earnings surprise in two of the preceding four quarters and has a negative average surprise of 1.28%. Let us see what is in store for the stock this quarter.
Factors to Consider
Melco Crown, that earns a better part of its revenues from Macau, missed the consensus mark on both counts in the second and third quarters. The lower-than-expected results were due to a slowdown in the Macau business since May 2014. China's crackdown on illegal money transfers, credit growth concerns, tighter restrictions on visas and the protests in Hong Kong are posing considerable threats to Macau gaming revenues, raising concerns for companies operating in the region. These factors have kept gamblers at bay, primarily VIP gamblers.
Gross gaming revenues in the Macau region have been declining since Jun 2014. In fact, Macau gaming revenues plunged in double digits in all three months of the fourth quarter, due to the anti-graft corruption drive undertaken by the Chinese government. Given the scenario, revenues of gaming companies like Melco Crown are expected to be soft in the soon-to-be-reported quarter.
Over the last 30 days, estimates have largely declined for the fourth quarter as well as for 2014.
Earnings Whispers?
Our proven model does not conclusively show that Melco Crown is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP: The company’s Earnings ESP stands at 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 27 cents.
Zacks Rank: Melco Crown has a Zacks Rank #5 (Strong Sell). We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Stocks to Consider
Here are some other companies in the gaming industry and 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:
Boyd Gaming Corp. (BYD) with an Earnings ESP of +16.67% and a Zacks Rank #2(Buy).
Hilton Worldwide Holdings Inc. (HLT) with an Earnings ESP of +5.56% and a Zacks Rank #3 (Hold).
Live Nation Entertainment, Inc. (LYV) with an Earnings ESP of +5.00% and a Zacks Rank #2.
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