UPDATE: Morgan Stanley Upgrades Melco Crown Entertainment

Analysts at Morgan Stanley recently upgraded Melco Crown Entertainment Ltd (ADR) MPEL from Equal-weight to Overweight and setting a $28 price target. Melco owns and operates casino and entertainment properties in Macau, China.

The Numbers

Analyst Praveen Choudhary believes that the horrendous gaming revenue numbers (a 30 percent year-over-year drop) in Macau in December are acting to set the 2015 bar low for casino operators such as Melco. Choudhary believes that growth will be driven in part by the opening of new properties in Macau in 2015, including Melco’s Studio City, which is expected to open its doors in September.

“The incremental [increase in] hotel rooms should help premium mass revenue (as overnight visitors tend to gamble more than day trippers), and potential extension of credit by casinos should help VIP revenue increase as well.”

A Technical Perspective

Melco stock has been trading in a clearly-defined downward channel over the past year.

The resistance line at the top of the channel is around the $26 level, and the support line at the bottom of the channel falls around $20. For Melco stock to reach Morgan Stanley’s $28 target sometime in 2015, the stock will first have to break out of this trading channel to the upside.

Major Upside

Melco was trading down 1.8 percent $23.71 level. Morgan Stanley’s $28 price target represents about a 16.7 percent upside for the stock from current levels. Melco shareholders have endured a 40 percent drop in share price over the past year as revenue numbers in Macau have plummeted.

Disclosure: the author owns shares of Melco Crown Entertainment.