Monarch Casino Executive Departure Doesn’t Dent Bull Thesis, Say Analysts

Posted on: August 26, 2021, 09:37h. 

Last updated on: August 26, 2021, 01:04h.

Todd Shriber @etfgodfather Read More

Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Shares of Monarch Casino & Resort (NASDAQ:MCRI) are holding up well this week as investors digest news of COO David Farahi’s departure from the gaming company.

The Reno-based operator made the announcement Tuesday, noting Farahi is leaving on Sept. 3 to pursue business endeavors outside of gaming. He joined Monarch in 2012 and was instrumental in the company’s Colorado expansion.

He also served four terms as President of the Colorado Gaming Association, leading three winning statewide ballot initiatives, including Amendment 77.

That proposition, which passed last year, paved the way for the gaming towns of Black Hawk, Central City, and Cripple Creek to ditch the prior $100 per hand cap on table game bets. The law also allows the addition of table games that were previously unavailable in Colorado.

Wall Street at Peace with Farahi Departure

Monarch owns just two casino resorts — the Atlantis in Reno and its namesake venue in Black Hawk — and its market capitalization is just $1.22 billion. So by any standard metric, this is a small company where a key executive leaving could rattle analysts and investors.

That could be particularly true in this case, because Farahi had a Wall Street-facing role and it’s not immediately clear how Monarch plans to fill that void. Still, the stock is up more than five percent over the past week, and analysts remain bullish on the name.

We believe the fundamental value, broad-based operating expertise, and earnings power of the assets remain considerable, as compared to other names in our coverage,” said Jefferies analyst David Katz in a note to clients today.

He maintains a “buy” rating on shares of Monarch. Although Monarch trades at rich valuations relative to its peers, it commands those premiums due to strong fundamentals. This includes 100 percent ownership of its real estate, meaning it has limited fixed costs and strong free cash flow prospects.

What’s Next for Monarch

Some of Farahi’s duties will shift to Michelle Shriver, who’s joining Monarch as corporate vice president of operations.

“During her tenure with Ameristar, Ms. Shriver also helped oversee the ~$300M expansion of Ameristar Black Hawk and has deep experience and relationships in the Black Hawk market,” says Stifel analyst Jeffrey Stantial.

Stantial reiterates a “buy” rating and an $84 price target on Monarch. That implies upside of about 29 percent from the Aug. 25 close.

“Coupled with MCRI’s full real estate ownership, peer-low net leverage, and healthy operating markets, we see opportunity for shares to re-rate higher as visibility into the ‘new normal’ improves. Hence, we reiterate Buy,” said the analyst.