Need To Know: Analysts Just Made A Substantial Cut To Their Melco Resorts & Entertainment Limited (NASDAQ:MLCO) Estimates

Today is shaping up negative for Melco Resorts & Entertainment Limited (NASDAQ:MLCO) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. Both revenue and earnings per share (EPS) estimates were cut sharply as the analysts factored in the latest outlook for the business, concluding that they were too optimistic previously.

Following the downgrade, the current consensus from Melco Resorts & Entertainment's 15 analysts is for revenues of US$2.3b in 2022 which - if met - would reflect a decent 19% increase on its sales over the past 12 months. Losses are expected to be contained, narrowing 19% from last year to US$1.30. Yet prior to the latest estimates, the analysts had been forecasting revenues of US$2.6b and losses of US$0.99 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 was broadly unchanged at US$11.26, perhaps implicitly signalling that the weaker earnings outlook is not expected to have a long-term impact on the valuation. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. The most optimistic Melco Resorts & Entertainment analyst has a price target of US$15.00 per share, while the most pessimistic values it at US$6.30. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.

These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Melco Resorts & Entertainment's past performance and to peers in the same industry. For example, we noticed that Melco Resorts & Entertainment's rate of growth is expected to accelerate meaningfully, with revenues forecast to exhibit 26% growth to the end of 2022 on an annualised basis. That is well above its historical decline of 20% a year over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in the industry are forecast to see their revenue grow 14% per year. So it looks like Melco Resorts & Entertainment is expected to grow faster than its competitors, at least for a while.

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. While analysts did downgrade their revenue estimates, these forecasts still imply revenues will perform better than the wider market. The lack of change in the price target is puzzling in light of the downgrade but, with a serious decline expected this year, we wouldn't be surprised if investors were a bit wary of Melco Resorts & Entertainment.

With that said, the long-term trajectory of the company's earnings is a lot more important than next year. At Simply Wall St, we have a full range of analyst estimates for Melco Resorts & Entertainment 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.