Enterprise value (or EV) divided by earnings before interest, tax, depreciation, and amortization (or EBITDA) is used to value companies in capital-intensive industries such as casinos. Let’s take a look at Melco Crown Entertainment’s (MPEL) one-year forward EV-to-EBITDA multiple relative to its peers.
As of January 9, 2015, Melco Crown Entertainment’s one-year forward EV/EBITDA stood at 10.6x. This is slightly lower when compared to Las Vegas Sands (LVS) and MGM Resorts. Wynn Resorts (WYNN) is trading at a one-year forward multiple of 12.7x.
Melco Crown Entertainment’s consensus revenue estimates given by Wall Street analysts are expected to increase by ~17% in 2015 and ~20% in 2016. Its consensus EBITDA estimates are expected to increase by ~14% and ~30% in 2015 and 2016, respectively. This EBITDA growth is mainly attributable to MPEL’s new casinos at Macau, which are currently under development. MPEL’s Studio City casino resort is expected to open in 2015, and City of Dreams’s fifth tower is expected to open in early 2017.
Considering its EBITDA growth, Melco Crown Entertainment is valued at 7.6x based on 2016E EBITDA. This valuation is very attractive and is expected to price in from current levels. MPEL is an attractive stock to own at this level.
Casino companies like Las Vegas Sands, Wynn Resorts, and MGM are developing their own casinos in Macau. Due to the growth of mass market gaming in recent quarters, Macau could become a supply-driven market.
Investors who would like to avoid the risk of investing in a single casino company may invest in ETFs such as the Consumer Discretionary Select Sector SPDR Fund (XLY).