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Is Melco Resorts & Entertainment Limited (MLCO) Expensive For A Reason? A Look At The Intrinsic Value

Does the share price for Melco Resorts & Entertainment Limited (NASDAQ:MLCO) reflect it’s really worth? Today, I will calculate the stock’s intrinsic value using the discounted cash flow (DCF) method. If you want to learn more about this method, the basis for my calculations can be found in detail in the Simply Wall St analysis model. If you are reading this after November 2017 then I highly recommend you check out the latest calculation for Melco Resorts & Entertainment here.

What’s the value?

We are going to use a two-stage DCF model, which simply means we have two different periods of varying growth rates for the company’s cash flows. Generally the initial phase has higher growth rates that plateau over time. To begin, I use the analyst consensus forecast of MLCO’s levered free cash flow (FCF) over the next five years and discounted these values at the cost of equity of 11.2%. When estimates weren’t available, I’ve extrapolated the average annual growth rate over the previous five years, capped at a reasonable level. This resulted in a present value of 5-year cash flow of $3,430M. Want to understand how I arrived at this number? Read our detailed analysis here.

NasdaqGS:MLCO Intrinsic Value Nov 3rd 17
NasdaqGS:MLCO Intrinsic Value Nov 3rd 17

The graph above shows how MLCO’s earnings are expected to move in the future, which should give you some color on MLCO’s outlook. Now we need to calculate the terminal value, which accounts for all the future cash flows after the five years. I’ve decided to use the 10-year government bond rate of 2.8% as the stable growth rate, which is rightly below GDP growth, but more towards the conservative side. Discounting the terminal value back five years gives us a present value of $7,167M.

The total value is the sum of cash flows for the next five years and the discounted terminal value, which results in the Total Equity Value, which in this case is $10,597M. In the final step we divide the equity value by the number of shares outstanding. This results in an intrinsic value of $19.47, which, compared to the current share price of $26.52, we find that Melco Resorts & Entertainment is rather overvalued and not available at a discount at this time.

Next Steps:

Although the valuation of a company is important, it shouldn’t be the only metric you look at when researching a company. What is the reason for the share price to differ from the intrinsic value? For MLCO, there are three key factors you should further examine:

PS. The Simply Wall St app conducts a discounted cash flow for every stock on the NASDAQ every 6 hours. If you want to find the calculation for other stocks just search here.


To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.

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