UBS has shifted its view on Melco Resorts & Entertainment Limited (NASDAQ:MLCO), moving the stock from Neutral to Buy while narrowly cutting its price target to $9.50 from $9.80. The change reflects a balance between near-term headwinds and the firm s confidence in the company s asset-led recovery plan.
The stock has endured significant weakness this year, falling 27% year-to-date. Third-party InvestingPro data cited by UBS shows the decline accelerated recently, with a 13.86% drop over the past week and a 35.47% fall across the last six months. UBS explicitly links this underperformance to investor concerns around rising trademark license fees, pressure on operating margins and deterioration in market share within Macau s gaming market.
On the constructive side, UBS highlights Melco s program of asset enhancements at its City of Dreams complex in Macau. A key element noted by the bank is a planned luxury, all-suite hotel that is slated to open in the third quarter of 2026. UBS expects these property-level upgrades to help offset margin pressure and higher branding-related fees that are anticipated to hit in 2026.
Financially, UBS models robust free cash flow generation for Melco in 2026-2027, estimating implied free cash flow yields in a range of 14% to 20%. The bank says that such cash generation could create room for balance-sheet repair and shareholder returns - specifically, the potential to reduce debt, resume dividends this year and undertake further share buybacks.
Valuation metrics underpinning UBS s stance include a roughly 7.3x multiple on 2026 estimated EV/EBITDA. The bank notes this sits about 0.5 standard deviations below the stock s two-year average and at a discount to the sector average EV/EBITDA of 9.1x, supporting the upgrade despite the trimmed price target.
Melco s most recent quarterly results present a mixed picture. For fourth-quarter 2025, the company reported earnings per share of $0.05, missing the consensus forecast of $0.10 by 50%. Revenue for the quarter came in at $1.29 billion, narrowly beating expectations of $1.28 billion. Analysts and investors are weighing these metrics as they assess Melco s operational momentum and the impact of rising costs.
UBS s recommendation reflects a view that property investment and improved cash conversion can mitigate some of the headwinds that have driven the share decline. At the same time, persistent pressure from licensing fees, margin compression and competitive dynamics in Macau remain immediate risks that investors must monitor.
What to watch next
- Progress and opening timeline for the new luxury all-suite hotel at City of Dreams (third quarter 2026 target).
- Actual free cash flow outcomes in 2026-2027 versus UBS s 14%-20% implied yield assumptions.
- Developments around trademark licensing fees and any further margin impact.