Melco Resorts’ Shares Named among Morningstar’s Top 10 under $10

Melco Resorts & Entertainment, led by CEO Lawrence Ho, has earned a spot on Morningstar’s recently unveiled list of the ten best stocks trading under $10. Despite a challenging year that saw the stock price tumble by 33.3%, resulting in Ho dropping off Forbes’ list of Hong Kong’s wealthiest, Melco’s shares currently trade at around $8.30.

2024 May Present Substantial Growth Opportunities

Melco Resorts & Entertainment operates several prominent properties in Macau, including City of Dreams, Morpheus, Studio City, and Altira. The company also manages casino hotels in Cyprus and Manila under the City of Dreams brand. Macroeconomic pressures and broader industry uncertainty caused the company’s share price to tumble, but this development may present an opportunity for savvy investors.

Morningstar, a leading investment research firm, evaluates the stock at $12.60, suggesting it is undervalued by approximately 32%. This assessment implies that Melco must climb over 50% from its current levels to reach this valuation. Morningstar analyst Jennifer Song noted that a potential resurgence was not unlikely, highlighting favorable market conditions.

“We believe the gambling market in Macau will enjoy solid growth in the longer term. As one of only six concession holders to operate casinos in Macao, Melco is ideally placed to benefit from this market dynamic.”

Jennifer Song, Morningstar analyst

Morningstar’s valuation considers the optimistic market dynamics in Macau, with nongaming revenue approaching 2019 levels and gross gaming revenue on track to meet or exceed pre-pandemic highs in the current year. Increased tourist flow from mainland China should more than compensate for the outflow of foreign visitors, bringing fresh capital to the region.

The Operator Can Capitalize on Emerging Industry Trends

Melco Resorts and Entertainment’s founder, Lawrence Ho, recently lost his position in Hong Kong’s 50 Richest list published by Forbes. Beijing’s crackdown on VIP junkets, once major revenue generators for Macau’s casinos, significantly impacted Melco’s bottom line, forcing the operator to undertake significant restructuring efforts to match the region’s new focus on non-gambling entertainment.

If Morningstar’s predictions come true, Ho will likely earn back his place on the prestigious list, as most of his wealth remains concentrated in the casino operator. Melco’s 2023 launch of Studio City phase 2, expanding one of its most profitable venues with 900 luxury rooms, should be the next profit driver, accommodating increasing tourist numbers.

Melco’s diverse exposure to mass-market and premium-mass clients should help mitigate the volatility associated with VIP customers, a segment still grappling with challenges in Macau due to previous controversies in the junket industry. Investors eyeing potential growth in Macau’s gambling market might find Melco Resorts & Entertainment an intriguing prospect amid its current share price.