Analysts trust Melco Resorts & Entertainment (NASDAQ:MLCO) could prop upwardly its sagging divvy up price by acquiring Studio City International Holdings (NYSE:MSC) and and so merging with parent Melco International Development.
That have comes courtesy of Bernstein analysts Vitaly Umansky and Louis Li who, in a recent search report, notation that the aforementioned transactions would unlock shareholder time value patch potentially guidance the gaming companion crystallize of losing its Nasdaq listing.
Shares of Melco are cancelled almost 44% year-to-date and 70.35% o'er the past year. Those performances are significantly worse than those of rivals Las Vegas Sands (NYSE:LVS) and Wynn Resorts — the other two US-listed Macau concessionaires.
Bernstein rates Melco “outperform” with a cost target area of $12.20, which is to a greater extent than two-baser the stock’s Fri closing toll of $5.72. However, the research steadfastly adds that if Saint Lawrence Ho’s troupe completes the two aforementioned deals, the part cost could bound to $15.
Good Reasons to Consider the Deals
Beyond creating shareholder value, Melco, though it hasn’t signaled it’s looking at the deals, has compelling reasons to deliberate purchasing out Studio City and merging with its international parent.
The City of Dreams operator already owns 55% of Studio City, which has also been mentioned past US regulators as a possible candidate for losing its New York listing. Not only would Melco streamline its cap body structure with that acquisition, it’d potential be getting a right trade as Studio City shares are downward 71.44% o'er the past times year.
Such a transaction would Pb to re-rating inwards Melco valuation (via increase in Studio City multiple and earnings before interest, taxes, wear and tear and amortization (EBITDA) enhancement) and append o'er US$2 of shareholder note value to our toll target,” mention the Leonard Bernstein analysts.
Acquiring Studio City would also clear up that company’s ownership structure. That’s relevant because it’s currently considered a artificial satellite cassino manipulator and below Macau’s new gaming laws, all satellite casinos must live owned past traditional concessionaires within the next triplet years.
By meeting with Melco International, which already owns almost 56% of the gaming entity, Melco Resorts potentially eliminates delisting put on the line patch mayhap broadening its investor base, adds Bernstein.
Avoiding Delisting Could De-Risk Melco Resorts Stock
Delisting fears are popping upwards followers musical passage of the Holding Foreign Companies Accountable Act (HFCAA) and ongoing geopolitical tensions 'tween the US and China.
In equity to Melco and Studio City, they’re united by a slew of other Chinese companies trading in New House of York that could make the ire of US regulators.
At emerge for the gaming keep company is that the aforementioned HFCAA mandates that audits of strange companies trading inward the US live inspected by the US Public Company Accounting Standards Board (PCAOB). However, the PCAOB says it cannot evaluate Melco’s audits, which are conducted past Max Ernst & Young, in Hong Kong — the gaming company’s headquarters.
Bernstein antecedently said the casino operator has options, including itemisation in Hong Kong. The shares previously traded there, but that itemization was deserted in 2015 with Ho noting investors were partial to the company’s Nasdaq-listed stock.
Melco hasn’t in public commented on purchasing Studio City or merging with its parent company, but it’s enlighten Leonard Bernstein sees positives in both potency transactions.