Monarch Casino Stock Tumbles on Macro Concerns, Analyst Downgrades

Posted on: April 21, 2022, 12:43h. 

Last updated on: April 21, 2022, 12:58h.

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

Monarch Casino & Resort (NASDAQ:MCRI) entered Thursday as one of this year’s best-performing gaming stocks. But on a brutal day for the group, the regional casino operator joined the growing list of slumping gaming names, as analysts downgraded the shares.

Monarch stock
Monarch’s Atlantis Reno. The stock slumped today following analyst downgrades. (Image: The Nevada Independent)

Coming into today, the Atlantis Reno operator was higher by almost 26% year-to-date. But a significant portion of that gain was wiped out in a single trading session, as Monarch stock plunged 20% on volume that was more than quadruple the daily average.

The Reno-based gaming company delivered first-quarter results after the close of US markets Wednesday, beating Wall Street estimates for both earnings per share and revenue. Sales climbed 44.5% quarter-over-quarter, while earnings before interest, taxes, depreciation and amortization (EBITDA) soared 50.4%. That wasn’t enough to allay some analysts’ concerns.

While the company has the strongest balance sheet within our gaming coverage, further growth or catalysts are less defined near term,” said Jefferies analyst David Katz in a note to clients today.

Katz lowers his rating on Monarch to “hold” from “buy,” while trimming his price target to $85 from $90. He noted that with the stock trading around 10x EBITDA, it’s appropriately pricing in growth, as well as early signs of potential economic duress.

Monarch Vulnerable to Macro Pressures

As the gaming industry worked its way past the worst days of the coronavirus pandemic, regional casino equities, including Monarch, were among the stars of the group.

Aided by pent-up demand and consumers flush with government stimulus cash, regional casino equities were among the first consumer discretionary stocks to bounce back in earnest. The government cash catalyst faded, but demand remained robust and regional operators generated impressive margin growth. Now, it appears that Monarch could be vulnerable to factors such as soaring inflation and rising gas prices. The Consumer Price Index (CPI) jumped 8.5% last month, and resides at four-decade highs.

“While Q1 trends were healthy, we see growing risk that the regional gaming consumer begin to fade in light of inflation, gas prices, re-allocation of budgets, and/or other macro pressures,” said Stifel analyst Jeffrey Stantial in a note.

He lowered his rating on Monarch stock to “hold” from “buy,” with a $96 price target.

Reno Competition Concerning

Monarch’s namesake venue in Black Hawk, Colo. ramped up well, and the company also enhanced Atlantis Reno this year in an effort to attract more affluent visitors.

Over the long-term, the Reno investments could pay off. But over the short-term, operators in that market could be vulnerable to increasing competition and declining margins due to an intense fight for labor.

“Further, to the extent the consumer begins to fade, this could evoke some reactionary marketing spending from peers in Reno – especially given the highly competitive nature of the market (with new supply potentially forthcoming),” adds Stantial.

At least one gaming venue is slated to open in Sparks this year, and other operators are entering the market, indicating other properties could be refreshed, creating more competition in the process.