With just two casinos to its name and a $1.25 billion valuation, Monarch Casino & Resort (MCRI -2.54%) isn't the southwest U.S.' biggest gambling operator by a long shot. It has, however, carved out a strong niche for itself at its two locations in Black Hawk, Colorado (near Denver) and Reno, Nevada, and is in the process of updating and expanding its services. Its third-quarter (Q3) 2021 earnings report, published on Oct. 25, show it's still hitting the jackpot when it comes to revenue and earnings growth. Here's what the details tell us about this small but vigorous casino company, and the American gambling market in general.
1. It's continuing its winning streak as casinos cash in
The Nevada Gaming Commission reports Las Vegas and Nevada gaming win is soaring, with six months of win over a billion dollars and August 2021's gambling figures topping August 2019's results by 22.3%. Finally released from COVID-19 lockdowns and with the Strip's flashy gambling establishments offering their lineup of slots, roulette, blackjack, baccarat, and other games of chance again, Americans are returning eagerly to Southwestern casino destinations.
While it operates in the Reno and Denver areas, not in Las Vegas, Monarch Casino & Resort is clearly seeing its business electrified by the same rebound. The earnings press release provides both year-over-year data and two-year stack metrics (comparing 2021's results to 2019's) for longer-term, pre-pandemic perspective. Q3 2021 revenue of $111.6 million soared 86.5% from last year and 70.2% above Q3 2019's figure. At the bottom line, $22.3 million in net income surged 107.7% year over year, rising 139.3% from 2019. Monarch also saw very strong year-over-year and two-year stack gains for the first nine months of the year.
The company's results set new records, while its triple-digit gains over 2019 -- when the pandemic hadn't yet shattered casino sector profits -- show its strategic initiatives and business model are being skillfully handled to generate continuing growth. Monarch CEO John Farahi noted that its revenue and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) achieved "all-time highs for the second consecutive quarter," ascribing the six months of outstanding success both to enthusiasm following the casino reopening in general, and to Monarch's "operational excellence and market-leading amenities" in particular.
2. It's executing successfully on its opportunities
Monarch is continuing several initiatives it began in the second quarter or earlier. Its renovation of its Black Hawk facility is proceeding and should be completed on schedule by 2021's end. Once finished, the casino "reboot" will increase restaurant capacity at the site by 35%, while adding 25% to the casino gambling facility. The company states its current facilities are operating at full capacity, so the added space will likely not stand idle, but contribute directly to future revenue growth.
The earnings report also says Monarch is taking full advantage of the Colorado legislature's May 2021 decision to remove wagering limits on table games. It remarks on how unlimited wagering has caused an increase in the number of gamblers coming to Black Hawk, and further says more "high value players" are now gambling there. Increasing the number of "high rollers" at its locations is an obvious boon to future profits.
3. Even some outside problems can't hold it back
Things are going well for Monarch, but there are also some difficulties in the post-lockdown period. Back in late August, the family-owned and run casino's COO, David Farahi, announced his Sept. 3 exit from the company and the entire gambling industry. The company replaced him with one of its recently hired consultants, Michelle Shriver, raising concerns about internal disruptions in the relatively small enterprise. However, Jefferies analyst David Katz expressed confidence at the time that "the fundamental value, broad-based operating expertise and earnings power of the assets remain considerable," a bullish take borne out by Monarch's latest results.
Monarch is subject to the same economic disruptions as many other U.S. businesses this year, including inflationary pressure, scarcity of labor, rising wage expenses, and the like. It also notes its "operation in Reno was impacted by unhealthy air quality from the California fires and Nevada's decision to reinstate indoor mask mandates." However, its Q2 and Q3 growth trajectory shows Monarch is also taking these difficulties in stride, at least up to this point, once again testifying to the resilience of its business model.
Monarch Casino & Resort is still earning its crown
Monarch Casino, though it's not operating in the massive gambling hub of Las Vegas proper, is clearly flourishing, seizing the opportunities offered by 2021's casino resurgence. The company is delivering juicy top- and bottom-line growth both year over year and by a two-year stack comparison, weathered a COO transition, and is continuing to build on its strengths while minimizing the effects of labor problems and other sector weaknesses, along with "acts of God" such as the California wildfire smoke in Reno.
Back in early August, I wrote that Monarch's solid Q2 results showed it was on a trajectory of growth likely to continue as its improvements come online and the casino sector rebounds. This week's quarterly results confirm the earlier signs, as Monarch continues raking in cash, strengthening its position, and proving it has a place on the list of growing, investment-worthy leisure stocks.