Monarch Casino Willing To Participate In Industry M&A

Posted on: February 15, 2023, 02:12h. 

Last updated on: February 15, 2023, 04:45h.

Monarch Casino & Resort (NASDAQ: MCRI) delivered fourth-quarter results late Wednesday. One of the more interesting tidbits to emerge could be the company signaling a willingness to consider mergers and acquisitions.

Currently, the Reno-based regional casino operator owns just two gaming venues — Atlantis in its home city, and a namesake property in Black Hawk, Colo. For how long Monarch’s roster remains that way remains to be seen. But CEO John Farahi says the company has the resources to consider consolidation opportunities.

Our strong balance sheet and free cash flow allows us to continue to invest in our existing operations, while we pursue potential M&A opportunities,” he said in a statement.

Monarch has $30 million in cash in the bank, and last week flexed its cash-flow generation muscles by announcing a one-time cash dividend of $5 per share and a new quarterly payout of 30 cents.

Monarch Could Be Aggressive in M&A Pursuit

In the statement, Farahi didn’t get into specifics regarding Monarch’s consolidation strategy. But it’s clear the operator is taking a proactive approach on that front.

“We are actively evaluating potential acquisitions, and we are prepared to move aggressively for the right opportunity,” added the chief executive officer.

“With the best balance sheet in the space and free cash flow (FCF) ramping to $100m+ in 2023E (Macquarie estimate), or a 7% FCF yield, we would expect MCRI leadership to maintain an opportunistic view on growth through M&A. We estimate MCRI could acquire $100m of earnings before interest, taxes, depreciation, and amortization (EBITDA) at current accretive valuation levels and still maintain sub 4x leverage,” wrote Macquarie analyst Chad Beynon in a note to clients.

Additionally, Monarch fully owns the real estate on which its two casino hotels reside, indicating that it could raise cash for an acquisition by selling one of those properties. However, the operator didn’t mention that is a strategy under consideration.

Weather Could Be Factor in Monarch M&A Plans

As Stifel analyst Jeffrey Stantial noted in a report, Monarch management mentioned bad weather as a slight hindrance to performance at Atlantis in the fourth quarter. That’s also an issue that could rear its head in Colorado.

To that end, it’s possible Monarch could evaluate acquisitions in regions of the US where snow isn’t a factor. But the operator didn’t speak to geographic preferences.

Stifel’s Stantial added that while Monarch is more likely a buyer, it could potentially be a seller. If the company doesn’t find attractive deals, it could deliver more special dividends to shareholders.