Thursday, December 5, 2013

Melco Crown: Gamble on a Breakout

Technician Leo Fasciocco, editor of Ticker Tape Digest, recommends establishing initial positions in this Macau gaming stock in anticipation of any upside breakout in the stock.

Melco Crown Entertainment Ltd. (MPEL), based in Hong Kong, operates gaming casinos and resort facilities in the Far East, including the Macau Studio City Project. Annual revenues are $4.8 billion.

The stock came public in late 2006 around $21, and fell to a low of $2.31 in 2008. However, since then, the stock has been on a roll. It made a recent new all-time high at $37. A breakout to another new high could draw more buying from the new-high crowd.

This year, analysts are forecasting a 57% surge in profits to $1.21 a share from 77 cents a year ago. The stock sells with a price-earnings ratio of 29, which we see as reasonable.

For the upcoming fourth quarter, analysts are forecasting an 80% surge in profits to 36 cents a share from 20 cents a year ago. The highest estimate on the Street is at 42 cents a share.

We see chances for an upside earnings surprise. The past three quarters, MPEL topped the consensus estimate by two cents a share, eight cents, and one cent.

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The stock came public in late 2006 around $21, and fell to a low of $2.31 in 2008. However, since then, the stock has been on a roll. It made a recent new all-time high at $37. A breakout to another new high could draw more buying from the new-high crowd.

With strong profits coming, we see MPEL in a good spot to be accumulated in anticipation of a breakout.

For now, we suggest a partial stake in MPEL with further buying to be done on a breakout over $37.20. We are then targeting MPEL for a move to $46. A protective stop can be placed near $34.

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