Is Melco Crown a Bargain Here?

With shares of Melco Crown Entertainment Limited (NASDAQ:MPEL) trading at around $19.42, is GNW an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Melco Crown has found itself in the middle of a lot of news and drama over the past few days. A London-based newspaper recently reported that the Chinese government will be cutting down on corruption. This supposedly includes junkets linked to organized crime. Since the majority of revenue for Macau casinos comes for VIP junkets, this has the potential to significantly reduce revenue.

However, there are two reasons this news is largely insignificant. One, the Chinese government has already indicated that it will not make any policy changes towards Macau. Two, China would only be shooting itself in the foot at a time when its economy is on shaky ground. Is it possible that organized crime is tied to the casinos in Macau? Of course. Will it have any impact on this business or its stock price? Not likely — at least not for the foreseeable future.

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Removing the negative hype and drama, we’ve got strong net income, which came in at $108 million for the quarter, slightly higher than $107.5 million in the year-ago period. Revenue increased 9.3 percent to $1.1 billion, also beating analyst expectations. FY2012 EPS came in at $0.76, which was a substantial improvement over EPS of $0.55 in 2011. The strong 2012 results were partially due to a significant increase in table game volumes, blended hold percentages, and increased volume in gaming machines. Another plus is that there has been a big jump in mass market play on the Cotai Strip.

Let’s take a look at some more important numbers prior to forming an opinion on this stock…