Melco Crown Entertainment Limited MPEL is slated to report second-quarter 2015 results on Aug 6, before the opening bell. The company posted a negative earnings surprise of 30.43% in the last reported quarter. In fact, Melco Crown's earnings has missed the Zacks Consensus Estimate in all the trailing four quarters and has an average negative surprise of 17.05%. Let’s see how things are shaping up for this announcement.
Factors Influencing this Quarter
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. As a result, the VIP business in Macau has been affected considerably.
China's crackdown on illegal money transfers, credit growth concerns, tighter restrictions on visas have posed considerable threats to Macau’s gaming revenues, which have raised concerns for companies like Melco Crown. In fact, the latest decline for the month of July marked the 14th consecutive month of decline. Given the current scenario, the soon-to-be reported quarter is expected to be a tough one for the company.
However, the company’s non-gaming business would mitigate the effects of a slowdown in the gaming business in Macau to some extent. In fact, non-gaming business' revenues grew year over year in 2014 and the first quarter of 2015. With a number of the company’s properties deriving revenue 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 boost the top line being a center of solid entertainment, accommodation and regional and international culinary offerings.
Earnings Whispers
Our proven model shows that Melco Crown is not likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.
Zacks ESP: Melco Crown’s Earnings ESP is -44.44%. This is because the Most Accurate Estimate of 5 cents is lower than the Zacks Consensus Estimate of 9 cents.
Zacks Rank: Melco Crown’s Zacks Rank #3 when combined with a negative ESP makes surprise prediction difficult.
We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks That Warrant a Look
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:
Guess' Inc. GES has an Earnings ESP of +6.67% and a Zacks Rank #1.
SeaWorld Entertainment, Inc. SEAS with an Earnings ESP of +10.00% and a Zacks Rank #2.
Live Nation Entertainment, Inc. LYV with an Earnings ESP of +14.29% and a Zacks Rank #3.
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