We maintain our Hold rating on shares of Monarch Casino & Resort (MCRI) following the release of disappointing first quarter results. We continue to believe that shares of MCRI hold significant long-term value. That said, in light of the challenging operating environment faced by the company, we do not expect significant near-term share price appreciation.
We believe that shares of Monarch are fairly valued at current levels, given the numerous challenges facing the company in the near-term. The company has a proven track record of delivering increasing revenues, earnings, and EBITDA from its Atlantis property.
We believe that the current expansion will enable the company to continue to take market share in the Reno area. In addition, the company has significant growth potential, either via new development on a vacant land parcel at its Atlantis property or via external development and acquisition outside the Reno market. We note that Monarch currently has $15.7 million in cash on the balance sheet, and zero debt, which give the company significant flexibility in financing any such growth.
Despite these positives, we expect the company to face a very challenging operating environment in 2008, as the company deals with a nearly perfect storm of issues including construction disruption related to the ongoing expansion, aggressive marketing and discounting by its closest competitor following the opening of a new hotel tower and casino expansion, increased general and administrative expenses including legal, payroll and benefits expenses, and weak economic conditions in the Reno area. We expect these issues to continue to negatively impact Monarch going forward. As such, we have substantially tempered our outlook.
Our $13.50 price target equates to a multiple of 14x projected 2008 EPS, plus cash on the balance sheet and our estimated value of the company's undeveloped real estate, and approximately 7x projected 2008 EBITDA, plus cash on the balance sheet and our estimated value of the company's undeveloped real estate.
Our projections take into account the expansion currently underway at the Atlantis property, but do not assume any additional developments or acquisitions. We note that as the year progresses, we may increase our forward estimates should conditions in the company's operating environment improve from the current challenging state.
Read the full analyst report on MCRI.
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