Monarch Casino Expected to Pursue M&A, Could Double in Size, Says Gaming Expert

Posted on: October 17, 2021, 07:00h. 

Last updated on: October 17, 2021, 02:29h.

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

Monarch Casino & Resort (NASDAQ:MCRI) could evaluate mergers and acquisitions opportunities, and the company could double its portfolio of gaming assets in three years, according to an industry expert. That’s as it ramps up what’s been a profitable expansion at its Black Hawk, Colo. integrated resort,

Monarch Casino
Monarch Casino’s Atlantis Reno. The company could be a buyer of assets or a rival. (Image: YouTube)

Howard Jay Klein, author of the investment newsletter The House Edge, says Reno-based Monarch “has reached the point of being a transaction stock.”

Its price now has become valued currency that could be part of an acquisition. Its excellent balance sheet assures no problem financing a deal for an operator of equal size, or even larger,” said Klein in a recent report.

Shares of Monarch, which owns the Atlantis in Reno and its namesake venue in Colorado, are up more than 46 percent over the past 12 months and 11.27 percent year-to-date. Currently, Monarch is the smallest publicly traded gaming company in the US by number of properties. That could change either by additions to its portfolio or single-casino operators coming to market.

Potential Candidates for Monarch

On the back of a six percent gain over the past month, Monarch has a market capitalization of $1.26 billion as of Oct. 15.

While Wall Street hasn’t mentioned specific companies Monarch could target in a takeover, the list of public operators with market values below that of the Atlantis owner is small. They consist of just Century Casinos (NASDAQ:CNTY) and Full House Resorts (NASDAQ:FLL), while Strat owner Golden Entertainment (NASDAQ:GDEN) is slightly larger than Monarch.

With peer-low net leverage, Monarch could participate in industry consolidation into year-end, or at some point next year. The company hasn’t added another property since buying the Colorado venue in 2012. As Klein notes, the operator trimmed its debt load by $25 million to $146 million, indicating its balance sheet is sturdy — an asset, should it decide to go shopping.

“The realistic pool of potential acquisition candidates is shrinking fast, so we believe MCRI will be moved to act while valuations are still within its financial reach,” he said.

Full House a Possibility?

Noting it’s a “theoretical deal,” Klein posits Full House as a potential target for Monarch. The former is looking to grow its footprint in Indiana, procure a license in Illinois, and also owns casinos in Colorado, Mississippi, and Nevada.

Klein says the combined company — if a marriage were to be consummated — could notch revenue of $655 million by 2023 and earnings per share of $4.35 to $4.85.

At first glance, Full House would be easily affordable for Monarch, as the latter’s market value is more than triple that of the former. Such a transaction would accomplish the objective of expanding Monarch’s portfolio of casinos.

But it remains to be seen if that company is interested in markets such as Indiana and Mississippi, and, as Klein notes, if the Farahi family is willing to have its stake diluted. The Farahis are the largest owners of Monarch equity.