Boyd Gaming, Monarch Casino Downgraded on Regional Gaming Concerns

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Boyd Gaming (NYSE: BYD) and Monarch Casino & Resort (NASDAQ: MCRI) were downgraded amid concerns that regional casinos are facing consumer-related lethargy.

Monarch Casino’s Atlantis Reno. Monarch’s stock, and that of Boyd Gaming, were downgraded amid concerns of softness in regional gaming markets. (Image: The Nevada Independent)

In a note to clients, Stifel analyst Steven Wieczynski lowered his ratings on both stocks to “hold” from “buy” while adding the “regional gaming fundamental outlook appears uninspiring if not concerning.” His price targets on Boyd and Monarch are $69 and $70, respectively. Shares of Boyd closed at $62.28  on Friday while Monarch settled at $65.12.

Regarding Boyd, which is the dominant operator in downtown Las Vegas and one of the biggest names among other Las Vegas locals’ casinos, Wieczynski noted revenue growth could become slack due to concerning visitation trends in some regional markets.

Based on trends to-date, we believe softness in spending will remain most impactful for lower income players in certain markets within the South & Midwest — both regions where BYD has meaningful exposure,” observed the analyst.

Wieczynski acknowledged that Boyd has tailwinds, including vibrancy in the Las Vegas locals segment, a solid management team, a sturdy balance sheet, and control over the bulk of its real estate.

Waiting on Deals with Monarch Casino

As measured by number of properties owned, Monarch Casino & Resort is the smallest US-listed casino stock. The operator runs Atlantis in Reno, Nev., and its namesake venue in the fast-growing Black Hawk, Colo. market.

In Reno, Monarch has been dealing with elevated promotional activity by rivals over the past several quarters, a scenario Wieczynski doesn’t expect will wane anytime soon because player behavior is changing for the worse.

As for mergers and acquisitions, Monarch is often part of gaming industry speculation on that front, likely the result of its diminutive roster. However, it could be a while before the company officially announces a purchase.

“Longer term, we believe the constructive thesis here factors MCRI acquiring the next ‘Black Hawk style’ opportunity — namely an under-invested asset in a quality market (stable supply; reasonable tax rate; strong population/job growth trends),” noted Wieczynski. “However, few assets fit management’s lofty standards, and hence we think it could take some time for such a deal to emerge.”

Churchill Downs Top Regional Casino Idea

It’s not a complete wash regarding the regional casino outlook for 2024, as Stifel is bullish on Churchill Downs (NASDAQ: CHDN), naming that stock its top idea in the regional gaming space. The research firm maintained a “buy” rating on the stock while boosting its price target to $150 from $145. That implies upside of about 18% from Friday’s close.

Churchill Downs owns all of the real estate on which its gaming venues reside, enjoys favorable regulatory benefits in Kentucky and Virginia, and is reducing leverage.

“Putting it all together, we see CHDN as uniquely positioned amidst potentially muted regional operator fundamentals given a pipeline of high return on investment new casino projects, same-store growth tailwinds in key historical horse racing markets, a favorable outlook for the high-quality Kentucky Derby asset, relative resilience to margin pressures, rapidly improving balance sheet strength & full real estate ownership, and a top-tier management team boasting a disciplined track record of capital allocation,” concluded Wieczynski.

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