Monarch Casino Quality Brick-and-Mortar Idea, Says Analyst

Posted on: March 31, 2021, 09:01h. 

Last updated on: March 31, 2021, 12:27h.

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

Internet casinos and online sports betting are the hot investing topics in the gaming space. But there are some gems among land-based gaming operators, includ­ing Monarch Casino & Resort (NASDAQ:MCRI).

Monarch Casino
Monarch’s Atlantis venue in Reno, Nev, seen here. An analyst sees a big upside for the stock. (Image: YouTube)

In a note to clients, Stifel analyst Steven Wieczynski says Monarch stock is a play on increasing rollouts of coronavirus vaccines and ebbing restrictions in Reno, Nevada and Black Hawk, Colo. The company operates in these markets.

“MCRI has lagged the broader regional operator group since the onset of the pandemic, as most peers have re-rated sharply on the high growth US online gaming opportunity,” said the analyst. “However, our meetings reinforced our view that MCRI offers investors a compelling brick-and-mortar regional gaming growth story without the uncertainty associated with iGaming/online sports betting.”

He reiterates a “buy” rating on Monarch stock with a $73 price target. That implies upside of almost 20 percent from the March 30 close.

Monarch Stock: Small Name, Mighty Potential

While investors fawn over online gaming ideas, assigning high multiples to those names, Monarch makes for an easy name to overlook.

It’s got a market capitalization of $1.12 billion and owns just two casinos — the smallest tally among publicly traded gaming entities. Neither its Atlantis in Reno nor its eponymous property in Colorado is in destination markets. Still, Wieczynski is bullish on the name, particularly as the newly enhanced Black Hawk property ramps up.

“We see a considerable growth trajectory in Black Hawk as MCRI ramps their ~$360 million expansion and new table games rules take effect, while MCRI continues to take share in Reno-Sparks,” said the analyst. “Longer-term, we see likely growing appreciation for strong macro fundamentals benefiting MCRI’s two feeder markets.”

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.

Encouraging Recovery Signs, M&A Possibilities

Wieczynski points out that in conversations with Monarch management, executives are encouraged by recent visitation trends. That’s following the latest round of government stimulus disbursements, which occurred earlier this month. Rising vaccination levels, particularly among some key demographics, are also buoying the Monarch stock thesis.

“While still early, management also highlighted some encouraging green shoots for the core 55+ demographic,” said the Stifel analyst. “We continue to see potentially meaningful pent-up demand with this customer segment, as the vaccine rollout progresses, with MCRI likely capturing significant share of the upside, given continued reinvestment in their market-leading assets.”

He adds that with peer-low net leverage, Monarch could be opportunistic regarding mergers and acquisitions as 2021 unfolds. The company hasn’t added another property since buying the Colorado venue in 2012.