The small get bigger
A little over a year ago, we published a report for our upper-tier clients on what we called the Nevada Triple Play – three small Nevada based companies poised for growth.
And, my, have they grown.
For starters, just look at the stock prices and their advances since that April 26, 2016 note:
Golden Entertainment $20.27 +68 percent
Monarch Casino $31.23 +61
Eldorado Resorts $20.80 +59
Each of these companies is a Nevada-based, family-controlled enterprise that had in common the phenomenal economic and population growth of their home markets in the state, and each had their own separate growth story.
We first purchased these stocks several months prior to writing our note, when Golden and Eldorado were under $9 and Monarch was $17. And even though they had advanced significantly by late April of last year, we thought their stories still held enough promise for more growth that a note to our clients was in order.
We updated that note this spring, again saying that, despite their climbs, the stocks had more to go.
We underestimated. And perhaps most of all, we did not at the time of the initial note anticipate the blockbuster deals that Eldorado and Golden had in store.
Eldorado came first, acquiring Isle of Capri and transforming from a small, Reno-centric operator to a mid-sized regional power with 19 casinos in 10 states generating $1.7 billion in revenue and $400 million in EBITDA. The stock value is $1.6 billion.
That’s a long way from the company that just a couple years ago owned 1.5 casinos in downtown Reno and a riverboat in Shreveport, Louisiana.
The next bombshell came just days ago when Golden purchased American Casino & Entertainment. The acquisition netted the two popular Las Vegas locals casinos Arizona Charlies, and the Aquarius which is 95 miles south in Laughlin, and most important, a major Las Vegas Strip resort in Stratosphere.
The impact was immediate. The stock soared 20 percent in three days and the market cap reached $450 million. The combined company expects to generate $180 million in EBITDA, or more than 3.5 times what Golden produced in the past year. At a post-cost savings price of 6.8 times EBITDA, American will add to earnings immediately.
In addition, the Stratosphere has significant growth potential. The 2,427-room casino-hotel with the tallest free-standing observation tower in the US at 1,149 feet, has long underperformed. With experienced casino operators in GDEN, CEO Blake Sartini and COO Steve Arcana, one can expect that the Strat’s potential will be fulfilled.
Next up is Monarch. Barring a surprise acquisition of its own, MCRI’s big growth project is known, with the expansion and transformation of Monarch Casino in Black Hawk, Colorado into a destination resort opening in phases with completion in 2019.
So, with such big price run ups, is there anything left for investors today?
The answer, perhaps surprisingly, could be yes. Without getting too much into a morass of numbers, each still has its Nevada growth story intact. Even with their acquisitions, Eldorado and Golden have the financial flexibility to continue to grow through acquisition, and Monarch has the same potential given its low debt.
And, as the Isle of Capri and American Casino purchases have shown, the managements of ERI and GDEN know how to pull off big and profitable deals.
(Note: Anyone wishing to see the original and follow up Nevada Triple Play notes may do so by contacting Robin Coventry at RCoventry@FantiniResearch.com or at +1-302-242-7186.)
