On Monday, Wells Fargo (NYSE:WFC) initiated coverage on Monarch Casino & Resort , Inc. (NASDAQ:MCRI), assigning an Underweight rating to the stock with a price target of $79.00.
The firm highlighted the normalization of growth in the Black Hawk gaming market, where Monarch Casino (EPA:CASP) operates. Despite recent gains, year-to-date gross gaming revenue (GGR) growth has slowed to 1%, aligning with trends in other regional markets.
The analyst from Wells Fargo noted that the Black Hawk market had previously seen a surge in GGR, increasing by 37% from 2019, outpacing the broader U.S. market growth of 16%. This growth was attributed to the lifting of betting limits and a comprehensive property overhaul by Monarch Casino. However, the analyst pointed out that growth is now normalizing and could be further impacted by nearby road construction on I-70 affecting market visitation.
In addition to the Black Hawk market, the Reno market, where Monarch Casino's Atlantis (WA:ATSP) holds a significant GGR share, is facing its own set of challenges. The analyst cited a highly competitive Reno-area market and the impending challenge of new tribal casino supply in Northern California. With flat year-over-year T12M GGR growth and increased promotional activity from Monarch Casino, the firm sees the Reno market as a competitive pressure point.
The Wells Fargo analyst also commented on the company's valuation, noting that Monarch Casino is trading at a slight premium compared to its historical average and peers, with an estimated 2025 enterprise value to EBITDA (EV/EBITDA) multiple of 8.8x. While acknowledging Monarch Casino's success in building out the Black Hawk market and increasing its GGR share significantly, the firm anticipates only modest or low single-digit growth going forward.
The report concluded with a note on Monarch Casino's ownership of its real estate and minimal debt, which the analyst described as a sub-optimal capital structure. Despite these factors, the firm suggested that there are better risk/reward opportunities available in the market when compared to peers' average EV/EBITDA multiple of 8.3x.
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