Monarch Casino Still Picky on M&A, Could Deliver Another Special Dividend
The stock of Monarch Casino & Resort (NASDAQ: MCRI), which is normally quiet, has had an outstanding year, rising 30.43% and surpassing the S&P 500 by a margin of more than two to one.
All the while continuing to be a two-casino group. The Atlantis in Reno and its namesake resort in Black Hawk, Colorado, continue to be part of Monarch's gaming portfolio. Its status as the US's smallest publicly traded casino operator by number of sites has not gone unnoticed by shareholders, and it has continuously raised concerns about possible deal-making.
Barry Jonas, an analyst at Truist Securities, writes in a recent report to clients that although executives are willing to expand their portfolio as long as candidates fulfill certain requirements, Monarch management is still very picky about potential purchases.
These include targets in essentially sound, expanding markets with strong laws, properties where the operator already owns the real estate, and areas that forbid iGaming.
Black Hawk became the nation's first casino municipality to join the National Association Against iGaming (NAAG) earlier this year. Cross off Connecticut, Delaware, Michigan, New Jersey, Pennsylvania, Rhode Island, and West Virginia from the list of jurisdictions where Monarch could shop because those states allow online casinos.
Monarch Has Other Options Besides M&A
The business has additional tools at its disposal to maintain investor interest in the event that Monarch is unable to find qualified acquisition targets.
In addition to its usual quarterly payout and "opportunistic" share repurchases, the regional casino operator may provide another special dividend if an agreement isn't reached within the next two years, according to Jonas. The analyst reaffirmed his "buy" recommendation and price target of $120 for the company.
The Reno-based gaming company has previously attracted interest from suitors, he adds, but management isn't in a rush to sell and doesn't have to be.
“MCRI has in the past received expressions of interest to acquire the company; and while they consider all options, they are ultimately focused on maximizing shareholder returns,” observes Jonas.
Colorado is the monarch's main focus
Given that Denver has historically been one of the major feeder markets to Las Vegas and that Black Hawk is one of the fastest-growing casino areas in the US, Monarch has the opportunity to increase its market share in Colorado by drawing in more local clients.
Although it would be challenging for Monarch to increase its property there due to real estate limitations, Jonas stated that "management will look at all opportunities in the market, inclusive of M&A."
The question is whether any of the other Black Hawk operators, which include Penn Entertainment, Bally's, Caesars, and Century Casinos, would be interested in selling. They may not be because, like Monarch, they are aware that Black Hawk is among the most alluring gambling jurisdictions outside of Las Vegas in the western United States.
