Monarch Casino Smashes Q4 Estimates on Black Hawk Ramp

Posted on: February 10, 2022, 09:32h. 

Last updated on: February 10, 2022, 12:57h.

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

Shares of Monarch Casino & Resort (NASDAQ:MCRI) are soaring Thursday. That’s after the regional casino operator reported estimate-trouncing fourth-quarter results, and as an analyst ups his outlook on the stock.

Monarch Casino
Monarch Casino’s namesake venue in Black Hawk, Colo, seen above. It’s one reason an analyst is lifting estimates on the operator. (Image: Uncover Colorado)

In midday trading, Monarch stock is higher by nearly eight percent on volume that’s already surpassed the daily average. That makes it one of today’s best-performing gaming equities, while extending a run that’s seen it surge 15 percent over the past week.

Late Wednesday, the Reno-based company reported fourth-quarter earnings before interest, taxes, depreciation and amortization (EBITDA) of $39 million on revenue of $111.1 million. Wall Street expected EBITDA of $32.2 million on sales of $98.3 million. The impressive set of results prompted at least one analyst to up his outlook on the stock.

Record fourth quarter results were despite weather related disruption in Reno and labor cost and other inflation,” said Stifel analyst Jeffrey Stantial in a note to clients.

He reiterates a “buy” rating on the two-casino company, while boosting his price target to $91 from $85. The new outlook is implying upside of about 25 percent from the Feb. 9 close.

Booming in Black Hawk

Entering 2022, it was widely expected that Monarch’s eponymous, newly enhanced venue in Black Hawk, Colo. would be a significant catalyst for the shares, and it’s looking that prognostication is proving accurate.

“Drilling in, we expect MCRI’s still recently debuted Black Hawk property drove much of the upside to our model, and likely consensus,” adds Stantial. “By our estimates, adjusted EBITDA was up another +five percent Q/Q, with annualized property adjusted EBITDA, based on Q4, implying a 21 percent cash on cash return on all-in project cost.”

Monarch management initially forecast an 18-month ramp-up period for the Black Hawk integrated resort, commencing in November 2020. But it’s tracking well ahead of that pace. Monarch spent more than $360 million to enhance the Colorado venue. Prior to the coronavirus pandemic, the operator-controlled 17 percent of slots turnover, 23 percent of table hold, and 34 percent of hotel room revenue in the Black Hawk market.

Monarch’s other property is the Atlantis in Reno. Management highlighted strong economic fundamentals in both markets, and it could be positioned for more momentum in its home market, as the Nevada COVID-19 mask mandate expires.

Colorado Calls

In November 2020, Colorado voters approved the end of the $100 cap on table game wagers, as well as the addition of new games, such as baccarat and pai-gow tiles. Analysts believe those moves could lure a higher-end clientele to the state’s casinos, create more overnight business, and keep more of the state’s gamblers home and away from Las Vegas.

Higher bet limits and more table games are obvious catalysts for a higher-end venue like Monarch Black Hawk. As Stantial notes, management only recently started marketing the venue to affluent Denver-area gamblers, most of whom frequent Las Vegas.

“All-told, this gives us conviction to raise our 2022/23E Adj. EBITDA materially, despite ongoing concerns on a potentially tapering consumer coupled with labor/other inflationary pressures,” said the analyst.