The stock price is now up 31% year-to-date.
Shares of Monarch Casino & Resorts (NASDAQ:MCRI) were soaring on Thursday, flying 18% higher after the company reported record second quarter earnings.
This smaller casino and resort company — which owns Monarch Casino Resort Spa in Black Hawk, Colo., and Atlantis Casino Resort Spa in Reno – had a big quarter with $137 million in revenue, up 7% year-over-year. This beat estimates of roughly $130 million in revenue.
Net income jumped 19% to $27 million while adjusted EBITDA rose 17% to $51.3 million – a record for the company. Adjusted earnings were $1.44 per share, up 21% year-over-year and well past estimates of $1.19 per share.
Monarch got a major boost from its casino revenue, which increased 12.1% in the quarter. Food and beverage revenue increased 1.1%, while hotel revenues fell by 3.1% on lower convention group business.
Operational efficiency
Monarch was also effective in managing expenses, which climbed only 2% to $26.8 million. As a percentage of revenue, expenses dropped to 19.6% from 20.4% in the same quarter a year ago.
Further, casino operating expenses as a percentage of casino revenue decreased to 35.7% from 37.7% the year prior, while F&B operating expenses decreased to 70.3% of revenue, down from 73.8%. However, hotel operating expense as a percentage of hotel revenue rose to 34.3% from 33.5%.
“At Monarch Black Hawk, we continue to increase market share, especially among mid-to-upper-tier guests from the Denver and Boulder metro areas,” Monarch CEO John Farahi said.
He added that the Atlantis property underwent a $100 million upgrade and redesign.
Analysts boost their price targets
Monarch got a slew of price target upgrades from analysts after posting second quarter results. Truist raised its price target by $15 to $120 per share, which would be about 17% higher than the current share price. Truist analysts said Monarch has benefitted from the improving trends for regional casinos.
Stifel boosted its target to $92 per share, while Wells Fargo raised it to $89. The stock has already surpassed those numbers with today’s rally – so those targets could move higher. Stifel cited stronger than expected initial demand for Atlantis’ renovated rooms, according to the Fly.
Wells Fargo analysts were impressed by Monarch’s operational execution, reasonable valuation, and robust free cash flow.
The company had cash and cash equivalents of $71.6 million and no borrowings against its credit facility as of June 30. The $12.4 million in capital expenses, including the Atlantic upgrades, were funded from operating cash flow. It also plans to buy back some 1.7 million shares with operating cash.
Officials also stated that the company is considering acquisitions.
“Monarch believes its strong balance sheet and free cash flow favorably position the company to continue investing in its properties and returning capital to stockholders through cash dividends and share repurchases,” the report stated. “The company continuously evaluates potential M&A transaction opportunities, which, if executed, could drive additional long-term value for stockholders.”
A stellar long-term performer
Monarch has quietly been one of the best casino stocks out there. The stock price is up some 31% year-to-date and 46% over the past 12 months. Over the past five years it has had an average annualized return of 24%, and over the past 10 years it has an average annualized return of 17%.
Few stocks in the industry can match that type of long-term performance.
The stock has a median price target of $92 per share, but that was before today’s rally. I’d expect to see more upgrades in the coming weeks.
The valuation has crept up a bit as its trading at 22 times earnings, but as Wells Fargo analysts surmised, it is still fairly reasonably valued.
