Monarch Casino & Resort (NASDAQ: MCRI) stock has risen nearly 25% this year, making it one of the top performers in the casino industry. However, an analyst believes there is more room for growth.
According to Texas Capital analyst David Bain, who recently initiated coverage of Monarch with a “buy” rating and a $147 price target, the operator’s two properties in Nevada and Colorado are considered best-in-class in their respective markets.
“The underlying customer demographic for both markets is strong, and properties capture well above fair share in their respective markets,” notes Bain. “Key drivers of peer outperformance are strong management and MCRI’s casino resort locations.”
Monarch’s presence in these growing markets contributes to its long-term investment appeal. Black Hawk is experiencing rapid growth in the casino industry, while Reno-Lake Tahoe attracts affluent Californians as new residents due to its diverse economic base.
Monarch Casino’s Real Estate Ownership is a Key Advantage
Unlike larger competitors, Monarch owns the real estate on which its casinos are located. This ownership model provides the company with a strong balance sheet, no long-term debt, and the potential for significant free cash flow generation.
According to Bain, “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. We value the existing portfolio 20% higher than where it currently trades.”
Is Monarch Casino Considering an Acquisition?
There is speculation about Monarch’s potential involvement in mergers and acquisitions within the gaming industry. While the company is cautious and selective in its approach, Bain suggests that an acquisition could enhance the stock value by $18 per share.
“The dynamic market conditions and industry chatter lead us to believe MCRI could be close to securing an acquisition agreement,” concludes the analyst.