Caesars, Monarch Price Targets Hiked, Analyst Sees Investors Looking Past Coronavirus Headwinds

Posted on: December 1, 2020, 09:24h. 

Last updated on: December 1, 2020, 10:40h.

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

Caesars Entertainment (NASDAQ:CZR) and Monarch Casino & Resort (NASDAQ:MCRI) are among the gaming equities favored by Truist Securities analyst Barry Jonas. That’s even as regional casinos encounter near-term hurdles because of a recent surge in coronavirus case counts.

Regional Casinos
Caesars’ Harrah’s in Joliet, Ill, seen here. An analyst is bullish on regional casinos despite recent COVID-19 closures. (Image: Las Vegas Review-Journal)

Over the course of the COVID-19 pandemic, Wall Street broadly favored operators with regional exposure. Market observers said those markets would recover more rapidly than Las Vegas, which is more dependent on air travel and the convention business.

For several months, that thesis held up, as regional operators, to the delight of the investment community, reported improving margins and steady traffic in markets such as the Midwest and the South. More recently, however, a massive flare-up in coronavirus cases across the country prompted the second round of temporary closures of gaming venues in areas including Detroit, Illinois, and Rhode Island, among others.

Jonas believes market participants will focus on the positives offered by operators with heavy footprints outside of Las Vegas.

We think investors will look through this and ultimately focus on: 1) post-vaccine pent-up demand, 2) post-election and 3) sports betting upside,” said the Truist analyst in a note to clients today.

On the recent round of third-quarter earnings conference calls, gaming executives highlighted positive October visitation trends, something that extended into November until late in the month, when national COVID-19 tallies spiked anew.

Analyst Lifts Price Estimates

Jonas raises price forecasts on three operators. These include Caesars, MGM Resorts International (NYSE:MGM), and Monarch Casino.

He lifts his estimate on the Caesars Palace operator to $85 from $70, while taking Monarch, which runs just two gaming venues, to $65 from $60, The analyst’s new price outlook on MGM is $32, up from $22. The $85 call on Caesars implies upside of 27 percent from where the stock closed on Monday.

The analyst’s projection on MGM represents an appreciation of 14.2 percent from where that name finished on Nov. 30. MGM and Caesars are the two largest operators on the Las Vegas Strip, levering both to COVID-19 vaccine developments.

Both companies have extensive regional portfolios, providing some buffer against Sin City’s slow recovery from the pandemic. For its part, Caesars previously highlighted immediate strength at venues in the Midwest and the South following the first round of reopening in the May/June period.

Waiting for Election Day Dividends

As Jonas notes, one of the catalysts for some regional operators are the results from Election Day 2020, including three states approving sports wagering and several others signing off on gaming expansion.

Caesars is particularly tethered to those potential benefits because of its growing sports betting exposure and its plans to open a new gaming property in Virginia, where voters signed off on commercial gaming.

Monarch Casino could be boosted by the passage of Amendment 77 in Colorado, which removes the $100 bet cap on table game wagers. That company is putting the finishes on an expansion project at its Centennial State property.

Jonas rates Caesars and Monarch a “buy,” and has a “hold” on MGM.