Caesars Entertainment vs. Monarch Casino: Which Casino Stock is a Better Buy?

Monarch Casino & Resort, Inc. (MCRI) owns and operates the Atlantis Casino Resort Spa, a hotel and casino in Reno, Nevada. The company also owns and operates the Monarch Casino Resort Spa Black Hawk in Black Hawk, Colorado. On the other hand, Caesars Entertainment, Inc. (CZR) operates as a gaming and hospitality company in the United States. The company operates casinos, dining venues, bars, nightclubs, lounges, hotels, and entertainment venues.

The COVID-19 pandemic-led restrictions proved to be a massive hurdle for the casino industry, as physical casinos were forced to remain closed. However, companies providing online casino services were able to generate significant returns. Along with the rising demand for online casinos, the reopening of physical casinos with the increasing legalization of gambling should drive the industry’s growth in the upcoming months. According to Research and Markets, the global online gambling market is expected to reach $112.09 billion in 2025, growing at a CAGR of 12%. Therefore, both MCRI and CZR should benefit.

But which of these two stocks is a better buy now? Let’s find out.

Latest Developments

On April 20, 2022, John Farahi, Co-Chairman and CEO of MCRI, said, “We continue to evaluate potential acquisitions where we can fully leverage our development and operating expertise to drive long-term value for our stockholders. Our future remains bright and we look forward to what promises to be an exciting 2022.”

On June 1, 2022, CZR and NYRA Bets LLC announced the new horse racing account wagering app, Caesars Racebook, which is officially live in Florida and Ohio, with plans to add additional states throughout the year. Dan Shapiro, Senior Vice President and Chief Development Officer of Caesars Digital, said, "The launch of Caesars Racebook is an important milestone as we continue to add wagering opportunities for our customers and livestreaming content for the first time."

Recent Financial Results

MCRI’s net revenues increased 44.5% year-over-year to $108.32 million for the fiscal first quarter ended March 31, 2022. The company’s adjusted EBITDA grew 50.4% year-over-year to $34.34 million, while its net income came in at $18.12 million representing a 122.2% year-over-year increase. Also, its EPS came in at $0.92, up 119% year-over-year.

CZR’s net revenues increased 20.9% year-over-year to $2.29 billion for the fiscal first quarter ended March 31, 2022. The company’s adjusted EBITDA declined 43.2% year-over-year to $296 million, while its net loss came in at $680 million, representing a 52.5% year-over-year increase. Also, its loss per share came in at $3.18, up 56.7% year-over-year.

Past and Expected Financial Performance

MCRI’s revenue and EBITDA grew at CAGRs of 20.9% and 34.5%, respectively, over the past three years. Analysts expect MCRI’s revenue to increase 18.3% for the quarter ending June 30, 2022, and 16.7% in fiscal 2022. The company’s EPS is expected to grow 14.5% for the quarter ending June 30, 2022, and 21.2% in fiscal 2022. Moreover, its EPS is expected to grow at a rate of 14% per annum over the next five years.

On the other hand, CZR’s revenue and EBITDA grew at CAGRs of 64.8% and 66.5%, respectively, over the past three years. The company’s revenue is expected to increase 11% for the quarter ending June 30, 2022, and 13.1% in fiscal 2022. Its EPS is expected to decline 55.9% for the quarter ending June 30, 2022, but grow 39.3% in fiscal 2022. Also, CZR’s EPS is expected to grow at a rate of 27.5% per annum over the next five years.

Profitability

CZR’s trailing-12-month revenue of $10.07 billion is significantly higher than MCRI’s $428.74 million. However, MCRI is more profitable, with a gross profit margin and EBITDA margin of 65.09% and 32.63%, compared to CZR’s 47.66% and 25.69%, respectively.

However, MCRI’s ROA and ROTC of 9.26% and 11.31% are higher than CZR’s 2.44% and 2.90%, respectively.

Valuation

In terms of forward EV/S, MCRI is currently trading at 3.19x, 23.2% higher than CZR’s 2.59x. Moreover, MCRI’s forward EV/EBITDA ratio of 11.53x is 46.9% higher than CZR’s 7.85x.

So, CZR is relatively affordable here.

POWR Ratings

MCRI has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. On the other hand, CZR has an overall rating of C, which translates to Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

MCRI has a grade of A for Quality. This is justified given MCRI's 11.31% trailing-12-month ROTC, 53.3% higher than the industry average of 7.38%. On the other hand, CZR has a Quality grade of C, in sync with its 2.90% trailing-12-month EBITDA margin, 60.7% lower than the industry average of 7.38%.

Of the 28 stocks in the Entertainment - Casinos/Gambling industry, MCRI is ranked #6. In comparison, CZR is ranked #15.

Beyond what I’ve stated above, we have also rated the stocks for Growth, Momentum, Value, Stability, and Sentiment. Click here to view all the MCRI ratings. Also, get all the CZR ratings here.

The Winner

The casino industry is expected to grow exponentially with the increasing legalization of gambling across the country. While both MCRI and CZR are expected to gain, it is better to bet on MCRI now because of its higher profit margin and better growth prospects.

Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the Entertainment - Casinos/Gambling industry here.

CZR shares were trading at $39.79 per share on Friday afternoon, up $2.12 (+5.63%). Year-to-date, CZR has declined -57.46%, versus a -22.34% rise in the benchmark S&P 500 index during the same period.

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.

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