Monarch Casino & Resort Mulling Acquisition Opportunities

Moline Monarch Casino Resort Acquisition Opportunities

Monarch Casino & Resort (NASDAQ: MCRI ) is considering opportunities to expand its portfolio of two properties through acquisitions.

Co-Chairman and CEO John Farahi made the remarks in the company's second-quarter earnings press release after the U.S. stock market closed on Wednesday. Reno-based Monarch Hotels currently owns the Atlantis Hotel in its hometown and the namesake venue in the rapidly growing city of Black Hawk, Colorado. market.

We continue to evaluate potential acquisition opportunities to leverage our development and operational expertise in a financially prudent manner. "Falahi said in the statement.

Farahi did not elaborate on the specific regions Monarch is considering entering or whether the company has held discussions with potential sellers.

A monarch can be a buyer... or a seller

Monarch Casino ended the second quarter with $35.1 million in cash on hand. That's a decent balance sheet for a company with a market capitalization of $1.41 billion, but it also means the operator may need to raise debt or equity to make an acquisition happen.

As for the prospects of Monarch striking a deal in the near future, anything is possible. However, management is known to be very selective, which is good for investors, while the current high interest rate environment is not conducive to debt-driven M&A activity.

Stifel analyst Jeffrey Stantial wrote in a note to clients: "In the current M&A environment, management's stringent requirements make executing acquisitions difficult, though not impossible, while MCRI's balance sheet flexibility can Offers a unique buying opportunity during a hypothetical economic downturn.”

Stantial added that Monarch could be a takeover target due to "high-quality assets and unclear long-term succession plans." He rates the stock a "buy" and has a price target of $91, representing 30.5% upside potential from current levels.

Where Monarch might look for deals

Assuming Monarch doesn't want to add properties in markets where it already operates, the scope of potential areas becomes even thinner considering the company is unlikely to be a competitor for Las Vegas Strip assets.

Management will likely continue to focus on "underinvested assets in quality markets (stable supply, appropriate tax rates, local economic growth drivers)." "These opportunities are more limited unless macroeconomic headwinds create more opportunities," Stantil noted.

When it comes to favorable tax incentives and growing local economies, look no further than the three gaming markets of Black Hawk, Center City, and Cripple Creek in northern Nevada and Colorado. These areas also benefit from being located in states with growing populations, a key attribute for regional casino operators.

In contrast, other major gambling states such as Illinois and Louisiana are experiencing declining populations. However, Louisiana has the advantage of being close to Texas, where casino gambling is not allowed.