Why Melco Crown Will Keep Its Hot Streak Alive

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Melco Crown Entertainment closed up 4% on Friday after Macquarie Capital upgraded the Macau casino operator from neutral to outperform.

So what: Along with the upgrade, analyst Gary Pinge boosted his price target on the stock to $41.50 (from $26), representing about 22% worth of upside to where it sits now. Value investors might be turned off by the stock's big run in 2013, but Pinge's updated growth estimates suggest to him that Melco has plenty of room for further price appreciation.

Now what: Macquarie sees solid growth ahead in Macau and expects Melco shares to benefit. "As explained in our report 'Continuing to pay out...(for now)', we have changed the assumptions in our Macau Growth Model and hence upgraded our FY13 and FY14 market growth expectations from 13% and 8% to 18% and 11%, respectively," noted Macquarie. "We have also strengthened our valuation framework for MPEL (including DCFs out to 2022)." With Melco up 150% from its 52-week lows and trading at a 40-plus P/E, however, I'd wait for a much wider margin of safety in case Macau doesn't grow as quickly as Macquarie expects.

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The article Why Melco Crown Will Keep Its Hot Streak Alive originally appeared on Fool.com.

Fool contributor Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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