Texas Capital cuts Melco Resorts stock rating on Macau uncertainty

Texas Capital Securities has downgraded Melco Resorts & Entertainment's stock rating to Hold from Buy, citing uncertainty surrounding Macau's gaming revenue. The downgrade is due to a significant gap between the company's third and fourth quarter 2026 EBITDA estimates and the consensus expectations. Analysts also point to reduced visibility for Macau's gross gaming revenue (GGR) amid prolonged heightened promotions and challenges stemming from China macro conditions, a new tax on offshore trust assets, and State Council Order No. 841.

Despite this, Melco's free cash flow yield remains above 20%, and the stock is trading below its historical EV/EBITDA ratio, suggesting potential undervaluation. However, the reduced price target reflects a lower multiple for Macau EBITDA. Melco Resorts & Entertainment recently reported weaker-than-expected Q2 2026 earnings, with revenue falling short of estimates.

The company is planning to open a new luxury hotel and entertainment complex, REM, following Golden Week in October.

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