In the category of setting expectations too high, DB's US analyst just moved their Q3 EBITDA estimate to $250 million. Good thing the stock is dirt cheap and consensus still too low.
We just can’t get to $250 million. That doesn’t mean we don’t think MPEL is ridiculously cheap and Q3 consensus is way too low. The stock should trade up into the quarter but if whisper expectations are for $250 million, the actually print could be a disappointment. We are at $228 million in Q3 EBITDA which is still almost 20% above the Street. With some tweaks we can certainly get higher but $250 million looks like a stretch. The stock does trade at only 7x 2012 EV/EBITDA so really, what's a few million?
So why is $250 million unlikely? The only way it happens is if City of Dreams and Altira held abnormally high on the rolling chip junket programs and much lower at the revenue share junkets. We’re pretty sure overall VIP hold percentage was around 3.08%, which is above normal but already reflected in our model. However, only a statistical anomaly favoring the rolling chip junkets could help boost EBITDA up to $250 million. Of course, there are more subtle areas that could contribute: lower promotions (doubtful), better cost controls (possible), but the junket mix would have to be extremely favorable.
We’re not trying to be too cute here. The fact is the stock looks very cheap and estimates need to go higher. That’s usually a recipe for share appreciation. We just want to keep expectations realistic.