What: Shares of Crown Resorts Ltd (ASX: CWN) have been on a tear of late, rising strongly from $11.66 in January to hit a high of $16.03 in February, but today took a big 5% plunge to $14.09.
What's going on?
Investors must remember that a better-than-expected performance from the group's Asian investment vehicle Melco Crown Entertainment Limited (NASDAQ: MPEL) drove the massive share price rise through January and February. The recent pull-back is likely a combination of investors taking profits and analysts at Deutsche Bank downgrading Melco Crown from a BUY to a SELL.
Deutsche Bank also cut its price target for the stock from $27.70 to $18.00, based on lower revenue from Macau and a forecast negligible impact from the opening of new casinos.
So What:
Investors in Crown have been through this all before when the share price plunged from over $18 to $12 last year on the same concerns. Long-term investors will know that Crown and Melco Crown have two of the strongest growth pipelines of any global casino groups. While the assumptions surrounding these expansions are just that, the global gambling market is expected to continue growing for many years yet and Crown is in a prime position to benefit. In the meantime, the group pays a solid dividend around 3% and has an excellent management team.