Monarch Casino Shares Solid not Spectacular, Says Analyst

Posted on: April 18, 2024, 04:59h. 

Last updated on: April 18, 2024, 04:59h.

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

Shares of Monarch Casino & Resort (NASDAQ: MCRI) could be steady though significant upside could be hard to come by over the near-term.

Monarch Casino
Atlantis Casino Resort in Reno. An analyst is tepid on shares of operator Monarch Casino & Resort.(Image: YouTube)

That’s the take of Stifel analyst Jeffrey Stantial following the regional casino operator’s first-quarter earnings report, which was delivered late Wednesday. Overall, results were solid at Monarch’s two casino hotels — Atlantis in Reno, Nevada and a namesake property in Black Hawk, Colo. But Stantial said the stock could hampered by broader regional casino headwinds.

However, until broader regional gaming malaise and/or competitive headwinds in Reno improve, we find it difficult to justify upside to estimates and/or multiple,” wrote the analyst.

He reiterated a “hold” rating on the stock with a $72 price target, implying upside of 8.2% from today’s close at $66.54. Shares of Monarch are off nearly 6% over the past month and 3.77% year-to-date.  The company told analysts and investors it repurchased $19.4 million worth of its own shares in the first three months of the year.

Monarch Casino Dealing with Headwinds

As measured by number of properties owned, Monarch Casino & Resort is the smallest U.S.-listed casino stock. The operator runs Atlantis in Reno, Nev., and its eponymous venue in the fast-growing Black Hawk, Colo. market.

In Reno, Monarch has been dealing with elevated promotional activity by rivals over the past several quarters as well as increased competition from Tribal operators in nearby markets in Northern California. Stantial notes it’s possible that the second half of this year will bring easier comparables for Monarch as rivals’ promotional spending eases a bit.

“Coupled with return on hotel room remodels (~125 rooms will be finished by end of Q2) & intact structural economic tailwinds, this suggests likely accelerating topline growth assuming stable consumer trends & competitor promotional behavior,” observed the analyst.

Stantial also pointed out that a 7% minimum wage increase in Nevada, scheduled for July 1, and rivals’ promotional plans could make it difficult for Monarch to leverage pricing power at its Reno property.

Somewhat Bullish on Black Hawk

Monarch executives told analysts the company is adding market share in Colorado, particularly among mid- to high-tier bettors and there’s still ample room left to gain more share among VIPs. That could be a sign that the operator’s investments in Black Hawk are paying off.

Previous expenditures at its casino hotel there could prove beneficial over the long-term because Colorado is rapidly adding population and some competitors in Black Hawk are also enhancing their gaming properties.

“Our checks indicate continued healthy pricing power for MCRI’s market-leading non-gaming amenities, in particular for the hotel business (consolidated hotel revenues were +8.4% Y/Y). Medium-term, we continue to highlight forthcoming room renovations at nearby Ameristar as a potential positive catalyst for average daily rates,” concluded Stantial.