Melco Resorts & Entertainment: The Worst Is Behind Us

Analyst view: Melco Resorts (MLCO) remains a BUY as World Cup-related Macau weakness is seen as already priced in, with fundamentals expected to strengthen into August’s peak visitation. In 1Q26, Macau EBITDA rose 16% YoY and margins expanded to 27.4%, showing better margin resilience than Las Vegas Sands. The stock trades at 6.5x forward EV/EBITDA, ~17% below LVS and 36% cheaper than the consumer discretionary sector, implying attractive valuation versus forward growth.

Analysis

The cleaner read is relative value, not a broad Macau beta trade. MLCO is showing better operating leverage than its peers, which matters because in casinos the first incremental dollar of demand drops disproportionately to EBITDA once fixed costs are covered. If that margin profile holds into the next visitation window, the market likely has to re-rate MLCO versus LVS and the broader leisure basket rather than simply reward the stock for a temporary recovery.

The second-order effect is competitive pressure on reinvestment. If MLCO keeps defending share with less discounting, rivals with heavier premium-mass exposure may need to spend more on comps, entertainment, and room inventory to protect occupancy, which can quietly erode sector margins even if gross gaming revenue improves. That makes LVS the cleaner relative short than a pure Macau macro short, while WYNN is the other obvious watch item if share shifts prove durable.

The main risk is that this is a timing trade, not a structural thesis, and seasonality can fade fast if premium traffic does not convert into higher play volume. The catalyst path is over the next 4-8 weeks: visitation, table drop, and hold normalization should confirm whether the earnings outperformance is real. Falsifiers would be a weaker-than-expected summer run-rate, a margin giveback from promotions, or any sign that the EBITDA beat was driven by transient mix rather than durable cost discipline.

Contrarian view: the consensus may be underestimating how much of the discount is self-inflicted by skepticism around capital allocation and governance, which means valuation could stay cheap even if fundamentals improve. If the stock does not outperform on a stronger Macau tape, that would argue the market wants proof of sustained free-cash-flow conversion, not another quarter of good operating headlines.

Key Decisions for Investors

• Long MLCO / short LVS as a 4-8 week relative-value trade; target further multiple convergence if Macau visitation data firm up and MLCO continues to print better margin resilience.
• Use MLCO on pullbacks, not strength-chasing: initiate only if the stock gives back intraday gains and the market is not already pricing the summer recovery, to preserve upside if next data points confirm the thesis.
• If you want cleaner convexity, buy MLCO call spreads into the next Macau visitation/earnings catalyst window; the trade works only if the market starts rewarding EBITDA margin durability rather than just topline seasonality.
• Watch WYNN as the secondary short if Macau share commentary turns more competitive; it has enough regional exposure to feel margin pressure if operators start bidding harder for premium mass.
• Falsify the bullish view on any evidence that August traffic fails to translate into spend: if gross gaming revenue or EBITDA margin trends flatten, take profits quickly because the rerating case depends on follow-through, not one good quarter.