Monarch Casino & Resort Mulling Acquisition Opportunities

Posted on: July 20, 2023, 02:18h. 

Last updated on: July 21, 2023, 09:56h.

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

Monarch Casino & Resort (NASDAQ: MCRI) is considering opportunities to add to its two-property portfolio via acquisition.

Monarch stock
Monarch’s Atlantis Reno, seen above. The company is looking for acquisition opportunities. (Image: The Nevada Independent)

Cochairman and CEO John Farahi commented to that effect in the company’s second-quarter earnings press release, published on Wednesday after the close of U.S. markets. Reno-based Monarch currently owns the Atlantis in its home city and its eponymous venue in the fast-growing Black Hawk, Colo. market.

We continue to evaluate potential acquisition opportunities where we can employ our developmental and operational expertise in a financially prudent manner,” said Farahi in the statement.

Farahi didn’t elaborate on specific regions where Monarch is considering entering, nor did he say whether or not the company has held talks with potential sellers.

Monarch Could Be Buyer … or Seller

Monarch Casino closed the second quarter with $35.1 million in cash on hand. That’s a decent tally for a company with a market capitalization of $1.41 billion, but one that also implies the operator would likely need to issue debt or equity to affect an acquisition.

As for the prospects of Monarch striking a deal over the near term, anything is possible. However, management is believed to be highly selective, which is to investors’ benefit, and the current high-interest rate environment doesn’t lend itself to debt-fueled mergers and acquisition activity.

“Management’s stringent requirements makes executing an acquisition tricky in the present M&A environment, though not impossible, while MCRI’s balance sheet flexibility could afford unique buying opportunities in a hypothetical downturn,” wrote Stifel analyst Jeffrey Stantial in a note to clients.

Stantial added that Monarch could be a takeover target, owing to “quality assets and unclear long-term succession plans.” He rates the stock a “buy” with a $91 price target, implying upside of 30.5% from current levels.

Where Monarch Could Look for Deals

Assuming Monarch doesn’t want to add a property in the markets in which it already operates, the field of prospective regions thins when considering the company probably isn’t a contender for a Las Vegas Strip asset.

Management is likely to continue to “target an underinvested asset in a quality market (stable supply; reasonable tax rate; local economic growth drivers). These opportunities are more limited and barring macroeconomic headwinds evoking incremental opportunities,” observed Stantial.

In terms of favorable tax trades and growing local economies, Northern Nevada and Colorado’s three gaming markets of Black Hawk, Central City, and Cripple Creek fit the bill. Those areas also benefit from being in states with rising populations, a pivotal trait for regional casino operators.

Conversely, other large gaming states, such as Illinois and Louisiana, are shedding population. However, Louisiana has the benefit of neighboring Texas, which doesn’t permit casino gaming.