Monarch (NASDAQ:MCRI) Reports Strong Q4

Luxury casino and resort operator Monarch (NASDAQ:MCRI) reported Q4 CY2024 results beating Wall Street’s revenue expectations , with sales up 4.9% year on year to $134.5 million. Its GAAP profit of $1.36 per share was 19.4% above analysts’ consensus estimates.

Is now the time to buy Monarch? Find out in our full research report.

Revenue: $134.5 million vs analyst estimates of $128.8 million (4.9% year-on-year growth, 4.4% beat)

EPS (GAAP): $1.36 vs analyst estimates of $1.14 (19.4% beat)

Adjusted EBITDA: $47.28 million vs analyst estimates of $41.83 million (35.1% margin, 13% beat)

Operating Margin: 23.4%, up from 19.8% in the same quarter last year

Market Capitalization: $1.57 billion

Established in 1993, Monarch (NASDAQ:MCRI) operates luxury casinos and resorts, offering high-end gaming, dining, and hospitality experiences.

Casino operators enjoy limited competition because gambling is a highly regulated industry. These companies can also enjoy healthy margins and profits. Have you ever heard the phrase ‘the house always wins’? Regulation cuts both ways, however, and casinos may face stroke-of-the-pen risk that suddenly limits what they can or can’t do and where they can do it. Furthermore, digitization is changing the game, pun intended. Whether it’s online poker or sports betting on your smartphone, innovation is forcing these players to adapt to changing consumer preferences, such as being able to wager anywhere on demand.

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Thankfully, Monarch’s 15.9% annualized revenue growth over the last five years was decent. Its growth was slightly above the average consumer discretionary company and shows its offerings resonate with customers.

Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Monarch’s recent history shows its demand slowed as its annualized revenue growth of 4.5% over the last two years is below its five-year trend. Note that COVID hurt Monarch’s business in 2020 and part of 2021, and it bounced back in a big way thereafter.

We can better understand the company’s revenue dynamics by analyzing its three most important segments: Casino, Dining, and Hotel, which are 57.3%, 24.2%, and 13.5% of revenue. Over the last two years, Monarch’s revenues in all three segments increased. Its Casino revenue (Poker, Blackjack) averaged year-on-year growth of 4.4% while its Dining (food and beverage) and Hotel (overnight stays) revenues averaged 4.5% and 3.8%.

Story Continues

This quarter, Monarch reported modest year-on-year revenue growth of 4.9% but beat Wall Street’s estimates by 4.4%.

Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months, a deceleration versus the last two years. This projection doesn’t excite us and implies its products and services will face some demand challenges.

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Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Monarch has shown terrific cash profitability, enabling it to reinvest, return capital to investors, and stay ahead of the competition while maintaining an ample cushion. The company’s free cash flow margin was among the best in the consumer discretionary sector, averaging 25.8% over the last two years.

We enjoyed seeing Monarch exceed analysts’ revenue, EBITDA, and EPS expectations this quarter. Zooming out, we think this was a solid quarter. The stock traded up 2.6% to $88.01 immediately following the results.

Monarch had an encouraging quarter, but one earnings result doesn’t necessarily make the stock a buy. Let’s see if this is a good investment. What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.