Monarch Casino Sizzles Following Q3 Results, Analyst Sees More Upside

Posted on: October 26, 2021, 10:35h. 

Last updated on: October 26, 2021, 11:51h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Monarch Casino & Resort (NASDAQ:MCRI) stock is on a blistering pace today after the regional casino operator reported third-quarter results that easily beat Wall Street estimates. That prompted at least one analyst to boost forecasts on the company.

Monarch Casino
Monarch Casino’s namesake venue pictured in Black Hawk, Colo. It helped the operator smash Q3 earnings estimates. (Image: 9News)

After the close of US markets Monday, the Atlantis operator said it earned $1.15 a share on revenue of $111.63 million in the September quarter. Analysts expected earnings of 99 cents a share on sales of $101.14 million. As a result of that bullish report, shares of Monarch are up 7.2 percent on above-average volume in midday trading.

Stifel analyst Jeffrey Stantial reiterates a “buy” rating on the casino operator while lifting his price target to $85 from $84. That implies upside of roughly 25 percent from the Oct. 25 close. The analyst says Monarch’s third-quarter results all are the more impressive when factoring in challenges in its home market of Reno.

In Reno, MCRI remained the beneficiary of a robust regional consumer (savings, pent-up demand, wallet share, etc.), which more than offset headwinds from California fires, the Nevada mask mandate, and short-lived (delta) variant fears,” he said in a note to clients.

Stantial raised his fourth-quarter, 2022, and 2023 earnings before interest, taxes, depreciation and amortization (EBITDA) estimates on Monarch by 10 percent, four percent, and three percent, respectively.

Black Hawk Boost

While the third quarter wasn’t an easy operating environment in Reno, Monarch was able to offset that by way of ramping up its namesake venue in Black Hawk, Colo.

Following substantial investments by the operator, that venue is one of the most high-end integrated resorts in a state with compelling gaming prospects. Last Election Day, Colorado voters approved the end of the $100 cap on table game wagers, as well as the addition of new games, such as baccarat and pai-gow tiles. Analysts believe those moves could lure a higher-end clientele to the state’s casinos, create more overnight business, and keep more of the state’s gamblers home and away from Las Vegas.

Monarch Black Hawk continues to ramp considerably, and is already run-rating at a high teens return on investment (ROI) by our estimates less than one year later, with several incremental growth drivers forthcoming,” adds Stantial.

Monarch spent more than $360 million to enhance the Colorado venue. Prior to the coronavirus pandemic, the operator-controlled 17 percent of slots turnover, 23 percent of table hold, and 34 percent of hotel room revenue in the Black Hawk market.

Monarch Has Strong Balance Sheet

Among the reasons Monarch has long been favored by analysts is the shares trading at discounts relative to peers and the operator’s fortress balance sheet.

“MCRI ended the quarter with $33 million of cash for $103 million total liquidity, including a $70 million undrawn revolver. MCRI used free cash flow during the quarter to make a $24.5 million optional prepayment on their term loan,” adds Stantial.

He notes Monarch’s leverage is 0.7x, but the company should be able to drive that to a more palatable 0.4x. There’s talk that with its declining debt and pristine balance sheet, Monarch could be a player in industry consolidation over the near to medium term.