Monarch Casino & Resort, listed on NASDAQ as MCRI, is poised for stability, while considerable price acceleration within the short term may be challenging to achieve. These sentiments were expressed by Jeffrey Stantial, an analyst from Stifel, in the wake of the first-quarter earnings results announced by the regional casino operator earlier this week. Monarch oversees two prime casino hotels – Atlantis, based in Reno, Nevada, and its eponymous Monarch Casino located in Black Hawk, Colorado.
The analyst portrayed the first-quarter earnings of the casino operator robust overall. The regional casino industry, however, appears troubled and Stantial believes this could put a damper on the stock’s performance. He stated that unless the regional gaming industry recovers or the competitive challenges in Reno alleviate, estimating an upward swing for Monarch stocks would be infeasible.
Stantial maintains a “hold” outlook on the MCRI stock, setting a price target of $72, which suggests a potential 8.2% upside from the closing price of $66.54 on Wednesday. Over the last month, Monarch stocks have declined almost 6%, with a year-to-date drop of 3.77%. Meanwhile, the company has successfully repurchased $19.4 million worth of its shares within the first quarter of the year.
An interesting factor to note about Monarch Casino & Resort concerning its US-based contemporaries is its size; it is the smallest listed casino stock when considered in terms of the number of owned properties. Yet, despite its limited footprint, the company has been actively countering the boosted promotional efforts exerted by competitors in recent quarters, particularly in Reno, as well as the heightened competition from Tribal operators in neighbouring Northern California markets.
Stantial lays out the possibility of an improving competitive scene for Monarch in the latter half of the year, as rivals are expected to marginally reduce promotional spending. With the renovation of nearly 125 hotel rooms scheduled for completion by the end of Q2, combined with the prevailing economic momentum, the casino operator is likely to see an accelerated growth pace, assuming stable consumer patterns and consistent competitor promotional behaviours. Nevertheless, Stantial highlights upcoming challenges such as a 7% minimum wage increase in Nevada set for July 1st and rivals’ aggressive promotional plans, which could potentially inhibit Monarch’s ability to wield pricing power at its Reno casino.
In contrast, Stantial proposes a rather optimistic outlook for Monarch’s position within the Black Hawk market. Monarch’s upper management relayed to analysts the promising indication of their growing market share in Colorado, especially among middle to high-tier bettors, and interestingly, there is ample room left for Monarch to capture a greater portion of the VIP market. This suggests a positive return on investments made in Black Hawk.
The burgeoning population of Colorado and the enhancement drives by direct competitors in Black Hawk could potentially serve as long-term tailwinds for Monarch. Stantial concludes by remarking on Monarch’s strong pricing power in non-gaming amenities, particularly within their hotel domain, where consolidated hotel revenues have seen an 8.4% surge year-on-year.
