Casino Operators Like Monarch Remain Selective on M&A Amid Potential Special Dividends

• Casino operator remains highly selective on mergers and acquisitions
• Analyst suggests another special dividend could be on the horizon if Monarch doesn’t make a move in the next two years

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Monarch Casino & Resort (NASDAQ: MCRI) has been making headlines recently as its stock price has soared by an impressive 30.43%, considerably outpacing the S&P 500 index. This growth comes as the company maintains its position with only two properties: the Atlantis in Reno and Monarch’s flagship in Black Hawk, Colorado. Despite having the smallest number of gaming venues among publicly traded casino operators in the United States, Monarch’s cautious approach to expansion is generating palpable interest among shareholders.

According to Barry Jonas, an analyst with Truist Securities, Monarch’s management is very particular about potential acquisitions. The preferences are clear: the company will only consider properties where it also owns the real estate, those situated in strong, developing markets with firm regulatory frameworks, and locations that do not allow for iGaming activities.

This assessment comes after Black Hawk’s recent decision to join the National Association Against iGaming, making headlines as the first casino municipality in the nation to do so, and narrowing down potential acquisition avenues for Monarch. Currently, internet casinos are permitted in states such as Connecticut, Delaware, Michigan, New Jersey, Pennsylvania, Rhode Island, and West Virginia, making these regions off-limits for Monarch’s acquisition plans.

Monarch Has Alternatives to M&A

In the event that suitable acquisition targets do not materialize, Monarch has alternative strategies to keep investors engaged. Jonas notes that if no deals are completed within the next two years, the company is likely to issue another special dividend alongside its regular quarterly payouts. The idea of a special dividend, indicative of solid financial health, continues to attract investor interest.

Historical interest from suitors to acquire Monarch hasn’t gone unnoticed, though management appears in no haste to sell. Instead, they remain committed to maximising shareholder returns, a focus that is reiterated in Jonas’s notes. The strategic vision here reflects a disciplined investment approach aimed at sustainable growth.

Colorado Market Expansion Focus

Black Hawk has been identified as one of the fastest-growing casino markets across the United States. With Denver serving as a key feeder market for Las Vegas, Monarch has considerable potential to attract more local customers. Despite the challenges posed by real estate restrictions in expanding their current operations, management is exploring all feasible market opportunities, including M&A.

The challenge will be whether other operators in Black Hawk, such as Bally’s, Caesars, Century Casinos, and Penn Entertainment, are willing to part with their properties. Given the attractive nature of the Black Hawk gaming landscape, the answer may lean towards ‘no’.

Key Considerations for Investors

• Monarch’s stock shows a significant upsurge of over 30% this year.
• The company is very selective with its mergers and acquisitions strategy.
• A potential special dividend is on the cards if acquisition opportunities do not arise in the near future.
• Focus on growing markets like Colorado, but constrained by real estate limitations.

In conclusion, while Monarch Casino’s strategy reflects a careful balance between market opportunities and prudent financial governance, it positions the company favorably for current and future shareholders. Investors must remain attentive to any developments in the merger landscape, as well as the potential for further shareholder returns through special dividends.