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

Shares of Monarch Casino & Resort (NASDAQ: MCRI) are up nearly 25% year to date—outperforming most regional gaming peers—and one Wall Street analyst says the stock still has room to run.

In a new report to clients, Texas Capital analyst David Bain initiated coverage of Monarch Casino & Resort with a “buy” rating and a $147 price target, implying a 23.5% upside from its Sept. 8 close. Bain noted that the operator’s two properties—the Atlantis in Reno, Nev., and a namesake venue in Black Hawk, Colo.—are “best-in-class” within their respective 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, maintaining that it won’t rush into M&A deals and that prospective targets must include owned real estate in tax-friendly states. However, with ample supply hitting the market, Texas Capital’s David Bain suggests a deal—one that could prove accretive to the tune of $18 per share—could be announced in the near term.

“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,” Bain stated.

“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,” the analyst concluded.