Monarch Casino Earns Analyst Applause After Posting Better Than Expected Q2 Results

Posted on: July 23, 2020, 10:52h. 

Last updated on: July 23, 2020, 11:51h.

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

Monarch Casino & Resort (NASDAQ:MCRI) earned a round of bullish calls from Wall Street analysts Thursday, a day after the regional gaming company reported second-quarter results that were significantly better than expected.

Monarch Casino Wins Analysts
Construction on Monarch’s Colorado casino. It’s expected to be finished this year and analysts love the stock. (Image: Twitter)

While Monarch’s two properties were closed for all of April and May, the company managed to lose just 24 cents a share on revenue of $15.16 million in the June quarter. Analysts expected a loss of 62 cents on a turnover of $14.35 million. The company operates just two casinos — the Atlantis in its home market of Reno, and the Black Hawk in the Colorado town of the same name.

Atlantis reopened on June 4, followed by Black Hawk on June 17, prompting some analysts to laud Monarch’s second-quarter numbers, given that the company got less than a month’s worth of activity out of those venues.

MCRI had its streak of 21 consecutive quarters of revenue growth snapped in 1Q20, but we expect the Black Hawk expansion and better than expected regional gaming trends will put the company back to positive year-over-year growth in 1Q21,” said Macquarie gaming and leisure analyst Chad Beynon in a note to clients today.

Expansion at the Centennial State property is essential to Monarch’s efforts to bolster revenue and earnings. But construction was slowed earlier this year because of the coronavirus pandemic.

Betting on Black Hawk

Even before COVID-19, Monarch contended with construction delays in Colorado. But the company managed to increase its market share in a competitive Black Hawk market, according to Beynon.

“However, the company has managed to increase its market share nearly 50 bps over the last year, an impressive feat given the renovation disruptions and share loss we typically see during an expansion,” said the Macquarie analyst.

Monarch is spending $300 million to enhance the Centennial State property or nearly half its equity market capitalization of almost $628 million. With sports betting forecast to boom in Colorado, analysts believe Monarch’s expansion in the state positions the company to capitalize on that trend. The company already launched its Monarch-branded sports betting app in the state, and Beynon says it’s possible the operator can command five percent market share going forward.

The operator already controls 17 percent of slots turnover, 23 percent of table hold, and 34 percent of hotel room revenue in the Black Hawk market. Monarch’s expansion there is forecast to be complete in the last three months of 2020.

Marvelous Management

Among regional gaming stocks, Monarch has long been favored among analysts for two factors investors are prioritizing in the current, tricky operating environment: a strong balance sheet and a steady management team.

“We believe investors would be hard-pressed to find a better management team to entrust to protect their investment through such challenging times,” said Stifel analyst Brad Boyer. “Finally, MCRI’s under-levered balance sheet should help to mitigate risks around the US economy shutting back down, while also providing ample liquidity to support additional inorganic growth opportunities.”

Boyer rates the stock a “buy,” with a $48 price estimate. Beynon rates it “outperform,” with a $44 target. At $46, the midpoint of those estimates, that implies upside of 31 percent from current levels.