Melco Resorts & Entertainment (NASDAQ: MLCO) could experience a dramatic increase in their earnings per share over the following years, as Macau continues to experience a resurgence after the coronavirus pandemic. In spite of these positive projections, Moody’s Investors Service has maintained a “Ba3” junk rating, with a “negative” outlook, on the operator of the City of Dreams.
Moody’s Vice President Gloria Tsuen stated that the rating affirmation was due to their assumptions of a strong recovery of the Macao SAR gaming market, which was recently lifted from pandemic-related travel restrictions. However, the recovery is still in its early stages, and it could take some time for the benefits to be realized by Melco.
In spite of the difficulties experienced in 2020 as a result of the pandemic, Moody’s estimates that Melco’s earnings before interest, taxes, depreciation and amortization (EBITDA) will increase to $700 million this year, and could reach $1.2 billion in 2024. This increase is based on the expectation that mass-segment GGR will return to around 75% of the level in 2019 and fully recover by 2024.
The company’s share price has more than doubled in the past six months, likely reflecting some of these positive projections. Fortunately, Melco has resources and time to deal with its debt burden, as its combined cash and unused revolver of $1.9 billion is sufficient to cover capital spending and short-term debt payments for the next 12-18 months. The next major debt maturities are expected in 2025.