Boyd Gaming and Monarch Casino & Resort have been downgraded due to concerns about consumer lethargy in regional casinos.
Stifel analyst Steven Wieczynski has lowered his ratings on both stocks from “buy” to “hold”, citing an uninspiring, if not concerning, outlook for the regional gaming market. His price targets for Boyd and Monarch are $69 and $70 respectively, while shares of Boyd closed at $62.28 and Monarch at $65.12.
Boyd Gaming and Monarch Casino & Resort are both significant players in the gaming industry, but they are not directly associated. They operate independently and have their own portfolios of properties.
Future strategy
Both Boyd Gaming and Monarch Casino & Resort have expressed interest in participating in the industry consolidation, but they have different approaches and challenges. Boyd Gaming has a strong balance sheet and free cash flow, which allows it to pursue potential M&A opportunities. However, the company is very disciplined and selective in its deal-making, and it may face competition from other larger operators. Monarch Casino & Resort has a smaller portfolio and a higher valuation, which makes it a potential target for acquisition. However, the company is also open to expanding its footprint by acquiring under-invested assets in quality markets. However, such opportunities are scarce and may take a long time to materialize. Therefore, both companies may need to be patient and opportunistic in their M&A strategy, as the regional gaming market remains uncertain and challenging.
Boyd Gaming, a dominant operator in downtown Las Vegas and a major player among other local casinos, could see a slowdown in revenue growth due to worrying visitation trends in some regional markets. Wieczynski believes that the softness in spending will most significantly impact lower-income players in certain markets within the South and Midwest, regions where Boyd has substantial exposure.
Monarch Casino & Resort, the smallest U.S.-listed casino stock by the number of properties owned, operates Atlantis in Reno, Nevada, and its namesake venue in the rapidly growing Black Hawk, Colorado market. In Reno, Monarch has been grappling with increased promotional activity by competitors over the past several quarters, a trend Wieczynski does not expect to diminish soon due to worsening player behavior.
M&A speculation
In terms of mergers and acquisitions, Monarch is often the subject of speculation in the gaming industry, likely due to its small portfolio. However, it may take some time before the company officially announces a purchase. Wieczynski notes that the long-term constructive thesis for Monarch involves the acquisition of an under-invested asset in a quality market, similar to their ‘Black Hawk style’ opportunity. However, few assets meet management’s high standards, indicating that such a deal may take some time to materialize.
Boyd Gaming, despite the downgrade, has several tailwinds. These include a vibrant Las Vegas locals segment, a solid management team, a robust balance sheet, and control over the majority of its real estate. The company is a significant operator in downtown Las Vegas and among other local casinos. It has substantial exposure in certain markets within the South and Midwest, which are expected to be most impacted by the predicted softness in spending. Despite these challenges, Boyd Gaming remains a key player in the regional casino market.
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