Monday, March 13, 2023

Melco’s stock could rise as a result of its Studio City acquisition and parent merger

Melco Resorts & Entertainment (NASDAQ:MLCO) may be able to boost its sinking stock price by acquiring Studio City International Holdings (NYSE:MSC) and merging it with parent Melco International Development, according to analysts.

Bernstein analysts Vitaly Umansky and Louis Li offer this viewpoint. According to a recent research report, the aforementioned moves will unleash shareholder wealth while also avoiding the gaming company’s Nasdaq delisting.

Melco’s stock has down about 44% year to date and 70.35 percent in the last year. These results are far poorer than rivals Las Vegas Sands (NYSE:LVS) and Wynn Resorts (NYSE:WYNN), the other two US-listed Macau concessionaires.

Melco is rated “outperform” by Bernstein, with a price target of $12.20, more than double its Friday closing price of $5.72. However, according to the research group, if Lawrence Ho’s company closes the two aforementioned deals, the stock might rise to $15.

Melco has compelling reasons to contemplate buying out Studio City and combining with its international parent, even though it hasn’t indicated that it is considering the agreements.

The operator of City of Dreams already owns 55% of Studio City, which has been identified by US regulators as a potential candidate for losing its New York listing. Melco would not only be streamlining its capital structure, but it would also be receiving a terrific deal, as Studio City shares had dropped 71.44 percent in the last year.

Studio City’s ownership structure would also be clarified if it was purchased. This is significant since it is now classified as a satellite casino operator, and all satellite casinos must be operated by traditional concessionaires within the next three years under Macau’s new gaming legislation.

Melco Resorts might avoid delisting by combining with Melco International, which already owns about 56 percent of the gambling company. Bernstein argues that this may be done while extending the company’s investment base.