Analysts Just Slashed Their Melco Resorts & Entertainment Limited (NASDAQ:MLCO) EPS Numbers

One thing we could say about the analysts on Melco Resorts & Entertainment Limited (NASDAQ:MLCO) - they aren't optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting analysts have soured majorly on the business. Shares are up 7.4% to US$5.63 in the past week. Investors could be forgiven for changing their mind on the business following the downgrade; but it's not clear if the revised forecasts will lead to selling activity.

Following the downgrade, the current consensus from Melco Resorts & Entertainment's 14 analysts is for revenues of US$1.8b in 2022 which - if met - would reflect a modest 4.3% increase on its sales over the past 12 months. Losses are expected to increase slightly, to US$1.91 per share. Yet before this consensus update, the analysts had been forecasting revenues of US$2.0b and losses of US$1.64 per share in 2022. Ergo, there's been a clear change in sentiment, with the analysts administering a notable cut to this year's revenue estimates, while at the same time increasing their loss per share forecasts.

See our latest analysis for Melco Resorts & Entertainment

The consensus price target fell 9.4% to US$8.82, implicitly signalling that lower earnings per share are a leading indicator for Melco Resorts & Entertainment's valuation. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. There are some variant perceptions on Melco Resorts & Entertainment, with the most bullish analyst valuing it at US$15.00 and the most bearish at US$4.60 per share. With such a wide range in price targets, the analysts are almost certainly betting on widely diverse outcomes for the underlying business. As a result it might not be possible to derive much meaning from the consensus price target, which is after all just an average of this wide range of estimates.

One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. One thing stands out from these estimates, which is that Melco Resorts & Entertainment is forecast to grow faster in the future than it has in the past, with revenues expected to display 8.8% annualised growth until the end of 2022. If achieved, this would be a much better result than the 23% annual decline over the past five years. Compare this against analyst estimates for the broader industry, which suggest that (in aggregate) industry revenues are expected to grow 13% annually for the foreseeable future. Although Melco Resorts & Entertainment's revenues are expected to improve, it seems that the analysts are still bearish on the business, forecasting it to grow slower than the broader industry.

The Bottom Line

The most important thing to note from this downgrade is that the consensus increased its forecast losses this year, suggesting all may not be well at Melco Resorts & Entertainment. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. Given the scope of the downgrades, it would not be a surprise to see the market become more wary of the business.

With that said, the long-term trajectory of the company's earnings is a lot more important than next year. We have estimates - from multiple Melco Resorts & Entertainment analysts - going out to 2024, and you can see them free on our platform here.

Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies that insiders are buying.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.