FANTINI ’ S FINANCE
Four for Four
Eldorado , Monarch , Golden and Full House would have been good stock choices — if you listened
BY FRANK FANTINI
Afew years ago , we published a research note titled “ Nevada Triple Play ” extolling the investment virtues of three family-controlled , Nevada-centric gaming companies — Eldorado Resorts , Monarch Casino and Golden Entertainment .
Later , we added a fourth , Full House Resorts , which , while neither a family company nor fully Nevada-focused , possessed many of the same strengths and opportunities . The stocks of all four companies have since soared , providing returns of several hundred percent each .
Since then , Eldorado has purchased Caesars Entertainment and changed its name to Caesars . Monarch and Golden have achieved much of the business potential we saw for them . Full House is still to play out .
So where do we stand on those companies today ? We are still with them , though for reasons that vary as the businesses have changed , and recognizing that the returns of the past several years are unlikely to repeat for most over the next several . Here ’ s a fresh look at the quartet :
• Caesars has undergone the greatest transformation from its much , much smaller Reno beginnings . The investment thesis : The same steadfast family control , a CEO in Tom Reeg focused perhaps like no other in the industry on the bottom line , and the potential of all of its large and varied assets — Las Vegas Strip resorts , regional casino network and 60 million-plus player database upon which to build a highly profitable online gaming and sports betting operation .
Given the prospect of generating EBITDAR approaching $ 5 billion in several years and an ever-improving balance sheet , it is likely that the stock will double in a reasonable amount of time from its recent $ 40 to $ 55 range , and then perhaps far more in the long-term . Caesars sound bite : Size matters .
• Golden . With the sales this year of its Maryland casino and its slot routes business , Golden will become a pure play on the growth of southern Nevada . The investor focus is on development of the
Strat in Las Vegas into a casino resort matching the revenue and profitability of would-be Strip peers like Circus Circus , Luxor and Excalibur , expanding the Las Vegas Valley tavern business to its stated goal of up to 100 units from today ’ s 64 , developing its dominant Laughlin presence into a profitable and growing Las Vegas alternative and LV residents ’ getaway , and maximizing returns of its locals casinos .
Achieving that should lift the stock from its recent $ 40-plus range to $ 60 or so , and even to near $ 80 if Golden receives the valuation multiples commensurate with its significant free cash flow and physical assets .
But in simplifying its business and generating more than $ 500 million from its Maryland and route sales , Golden has opened other possibilities .
The company will be positioned to grow . That could come through casino acquisitions . But it also could come in unconventional ways , such as extending the highly profitable tavern business ( EBITDA exceeding $ 500,000 per unit ) to other states , perhaps in partnership with Illinois-based J & J Ventures , which is buying its route business .
Golden could become an acquisition candidate itself . CEO and principal shareholder Blake Sartini was COO of Red Rock Resorts , whose chief shareholders , his brothers-in-law Frank and Lorenzo Fertitta , want to make their locals casino empire hyperlocal , including tavern development . Then again , a merger with another mid-size operator facing the same issues , say Monarch Casino , could make sense . Finally , and perhaps most likely , Golden becomes a low-debt cash-generating machine returning capital to shareholders with special and recurring dividends and stock repurchases while Sartini and President-CFO Charles Protell search out expansion opportunities . Golden sound bite : Optionality .
• Monarch Casino has come closest to achieving the potential we saw for it in Nevada Triple Play . While the stock might add another $ 10 or $ 20 or even $ 30 to its current $ 70s range , another fourbagger is unlikely .
And though CEO John Farahi is on the hunt for an acquisition , one wonders if the uber-prudent businessman can find a property to match the mature Atlantis in Reno and soon-to-mature Monarch in Black Hawk , Colorado .
Aside from such an acquisition , the question is where the family-controlled company goes from here , especially with the Farahi brothers in their 70s . One possible answer is that John ’ s son Dan grows into greater responsibility . Another is that son and former COO David returns to take the helm .
For now , the debt-free company is sharing its growing mountain of cash with shareholders . Monarch recently announced a $ 5 a share special dividend and 30 cents-a-share quarterly dividend . Further dividend growth appears likely as the mountain rises .
One thing we know , John Farahi is an exceptional operations CEO and a man of utmost integrity and purpose . He will find the best route for shareholders . Monarch sound bite : Free cash flow machine . Full House Resorts reported disappointing fourth quarter earnings that caused the stock to sell off . Our response : Thank goodness . We were able to buy a few more shares at what should prove to be bargain prices .
The fourth quarter has virtually nothing to do with its outlook .
• Full House has new properties this year in Chicagoland and Cripple Creek , Colorado , that will triple the legacy $ 40 million or so in EBITDA in the foreseeable future and probably quadruple it over time .
Most analysts have target prices of $ 13 or $ 14 on the stock recently selling around $ 8 . They are being conservative . A price of $ 20 in a year or so is more likely . And given the same valuation as peers , $ 25 and even $ 30 is credible in time . By then , always-imaginative CEO Dan Lee and his experienced management team are sure to have found new growth opportunities to pursue .
Full House sound bite : Growth , baby !
Frank Fantini is principal at Fantini Advisors , investors and consultants with a focus on gaming .
12 Global Gaming Business APRIL 2023