Monarch Casino: ‘Best-in-Class’ Among Gaming Stocks

Shares of Monarch Casino & Resort (NASDAQ: MCRI) are up nearly 25% this year, making the Atlantis owner one of the best-performing names among casino stocks, but an analyst believes more upside is on the way.

In a new report to clients, Texas Capital analyst David Bain initiated coverage of Monarch with a “buy” and a $147 price target, implying upside of 23.5% from the Sept. 8 close. He says the operator’s two properties — the Atlantis in Reno, Nev. and a namesake venue in Black Hawk, Colo. — are “best-in-class” in those markets.

Monarch’s footprint in those markets is accretive to the long-term investment thesis. Black Hawk is one of the fastest-growing casino markets in the U.S. while Reno-Lake Tahoe is luring well-heeled Californians as new residents thanks to an economic base (manufacturing and technology) that’s considered more diverse than Las Vegas.

Monarch Casino Real Estate Ownership Is a Big Deal

While it has no Las Vegas footprint, Monarch is consistently praised for its exposure to two of this country’s most attractive ex-Sin City markets. For prospective investors, there are other potential sources of allure.

Monarch is also widely commended by analysts for owning the real estate on which its gaming venues reside. It eschewed the property sales model pursued by larger competitors, opting to retain real estate ownership, meaning it offers market participants a clean balance sheet with no long-term liabilities and robust free cash flow (FCF)-generating prospects.

“It owns its real estate, has excess acreage for expansion, carries no long-term debt, and we forecast it to generate ~$126 million/$134 million in 2027E/2028E net FCF,” adds Bain. “We value the existing portfolio 20% higher than where it currently trades.”

Is Monarch Casino Close to Announcing an Acquisition?

One of the most often discussed points relating to Monarch Casino is the operator’s possible role in gaming industry mergers and acquisitions (M&A).

The operator is notoriously selective, noting it won’t rush into deals and that prospective targets must include owned real estate and be in tax-friendly states. But with ample supply coming to market, it’s possible a deal — one that could be accretive to the tune of $18 per share — could be announced over the near-term, according to Bain.

“However, gaming’s current and potential M&A inventory is near a historically high level with unique seller motivations across a handful of large portfolios for a limited pool of buyers,” concludes the analyst. “The dynamic creates a buyers’ market, on balance, in our view. The framework, combined with industry chatter and our own channel checks, lead us to believe MCRI could be relatively close to securing an acquisition agreement.”