Intrinsic value of Monarch Casino&Resort - MCRI

Previous Close

$35.23

  Intrinsic Value

$23.71

stock screener

  Rating & Target

sell

-33%

  Value-price divergence*

-61%

Previous close

$35.23

 
Intrinsic value

$23.71

 
Up/down potential

-33%

 
Rating

sell

 
Value-price divergence*

-61%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of MCRI stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 0.6

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  7.43
  5.50
  5.45
  5.40
  5.36
  5.33
  5.30
  5.27
  5.24
  5.22
  5.19
  5.17
  5.16
  5.14
  5.13
  5.11
  5.10
  5.09
  5.08
  5.08
  5.07
  5.06
  5.05
  5.05
  5.04
  5.04
  5.04
  5.03
  5.03
  5.03
  5.02
Revenue, $m
  217
  229
  241
  254
  268
  282
  297
  313
  329
  347
  365
  383
  403
  424
  446
  468
  492
  517
  544
  571
  600
  631
  663
  696
  731
  768
  807
  847
  890
  935
  982
Variable operating expenses, $m
 
  122
  129
  136
  143
  150
  158
  166
  175
  184
  193
  201
  211
  222
  233
  245
  258
  271
  285
  299
  314
  330
  347
  364
  383
  402
  422
  444
  466
  489
  514
Fixed operating expenses, $m
 
  66
  67
  69
  71
  72
  74
  76
  78
  80
  82
  84
  86
  88
  90
  93
  95
  97
  100
  102
  105
  107
  110
  113
  116
  119
  122
  125
  128
  131
  134
Total operating expenses, $m
  178
  188
  196
  205
  214
  222
  232
  242
  253
  264
  275
  285
  297
  310
  323
  338
  353
  368
  385
  401
  419
  437
  457
  477
  499
  521
  544
  569
  594
  620
  648
Operating income, $m
  39
  41
  45
  50
  55
  60
  65
  71
  76
  83
  89
  99
  106
  114
  122
  131
  140
  149
  159
  170
  181
  193
  206
  219
  233
  247
  263
  279
  296
  314
  333
EBITDA, $m
  54
  58
  63
  68
  74
  80
  86
  92
  99
  107
  114
  123
  131
  140
  150
  160
  170
  181
  193
  205
  218
  232
  247
  262
  278
  295
  313
  332
  351
  372
  394
Interest expense (income), $m
  0
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
Earnings before tax, $m
  38
  40
  44
  49
  53
  58
  63
  69
  75
  81
  87
  96
  104
  111
  119
  127
  136
  146
  155
  166
  177
  188
  201
  213
  227
  241
  256
  272
  289
  307
  326
Tax expense, $m
  13
  11
  12
  13
  14
  16
  17
  19
  20
  22
  24
  26
  28
  30
  32
  34
  37
  39
  42
  45
  48
  51
  54
  58
  61
  65
  69
  74
  78
  83
  88
Net income, $m
  25
  29
  32
  36
  39
  43
  46
  50
  54
  59
  64
  70
  76
  81
  87
  93
  99
  106
  113
  121
  129
  138
  146
  156
  166
  176
  187
  199
  211
  224
  238

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  26
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  295
  284
  299
  315
  332
  350
  368
  388
  408
  429
  452
  475
  500
  525
  552
  581
  610
  641
  674
  708
  744
  782
  821
  863
  906
  952
  1,000
  1,050
  1,103
  1,158
  1,216
Adjusted assets (=assets-cash), $m
  269
  284
  299
  315
  332
  350
  368
  388
  408
  429
  452
  475
  500
  525
  552
  581
  610
  641
  674
  708
  744
  782
  821
  863
  906
  952
  1,000
  1,050
  1,103
  1,158
  1,216
Revenue / Adjusted assets
  0.807
  0.806
  0.806
  0.806
  0.807
  0.806
  0.807
  0.807
  0.806
  0.809
  0.808
  0.806
  0.806
  0.808
  0.808
  0.806
  0.807
  0.807
  0.807
  0.806
  0.806
  0.807
  0.808
  0.806
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.808
Average production assets, $m
  214
  226
  238
  251
  264
  278
  293
  309
  325
  342
  359
  378
  398
  418
  439
  462
  485
  510
  536
  563
  592
  622
  653
  686
  721
  757
  795
  835
  877
  922
  968
Working capital, $m
  4
  -23
  -24
  -26
  -27
  -29
  -30
  -32
  -33
  -35
  -37
  -39
  -41
  -43
  -45
  -47
  -50
  -52
  -55
  -58
  -61
  -64
  -67
  -70
  -74
  -78
  -81
  -86
  -90
  -94
  -99
Total debt, $m
  26
  29
  33
  37
  40
  44
  49
  53
  58
  62
  68
  73
  78
  84
  90
  97
  104
  111
  118
  126
  134
  142
  151
  161
  171
  181
  192
  203
  215
  228
  241
Total liabilities, $m
  61
  64
  68
  72
  75
  79
  84
  88
  93
  97
  103
  108
  113
  119
  125
  132
  139
  146
  153
  161
  169
  177
  186
  196
  206
  216
  227
  238
  250
  263
  276
Total equity, $m
  234
  219
  231
  244
  257
  270
  285
  300
  316
  332
  349
  367
  386
  406
  427
  449
  472
  496
  521
  547
  575
  604
  635
  667
  700
  736
  773
  812
  852
  895
  940
Total liabilities and equity, $m
  295
  283
  299
  316
  332
  349
  369
  388
  409
  429
  452
  475
  499
  525
  552
  581
  611
  642
  674
  708
  744
  781
  821
  863
  906
  952
  1,000
  1,050
  1,102
  1,158
  1,216
Debt-to-equity ratio
  0.111
  0.130
  0.140
  0.150
  0.160
  0.160
  0.170
  0.180
  0.180
  0.190
  0.190
  0.200
  0.200
  0.210
  0.210
  0.220
  0.220
  0.220
  0.230
  0.230
  0.230
  0.240
  0.240
  0.240
  0.240
  0.250
  0.250
  0.250
  0.250
  0.250
  0.260
Adjusted equity ratio
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  25
  29
  32
  36
  39
  43
  46
  50
  54
  59
  64
  70
  76
  81
  87
  93
  99
  106
  113
  121
  129
  138
  146
  156
  166
  176
  187
  199
  211
  224
  238
Depreciation, amort., depletion, $m
  15
  17
  17
  18
  19
  20
  21
  22
  23
  24
  25
  24
  25
  26
  28
  29
  31
  32
  34
  35
  37
  39
  41
  43
  45
  48
  50
  53
  55
  58
  61
Funds from operations, $m
  45
  46
  50
  54
  58
  63
  67
  72
  77
  83
  89
  94
  101
  107
  115
  122
  130
  138
  147
  156
  166
  177
  188
  199
  211
  224
  237
  251
  266
  282
  298
Change in working capital, $m
  1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
Cash from operations, $m
  44
  47
  51
  55
  59
  64
  69
  74
  79
  85
  91
  96
  103
  109
  117
  124
  132
  141
  150
  159
  169
  180
  191
  202
  215
  228
  241
  255
  271
  286
  303
Maintenance CAPEX, $m
  0
  -13
  -14
  -15
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -23
  -24
  -25
  -26
  -28
  -29
  -31
  -32
  -34
  -35
  -37
  -39
  -41
  -43
  -45
  -48
  -50
  -53
  -55
  -58
New CAPEX, $m
  -26
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -33
  -35
  -36
  -38
  -40
  -42
  -44
  -46
Cash from investing activities, $m
  -25
  -25
  -26
  -28
  -29
  -31
  -33
  -33
  -35
  -37
  -39
  -42
  -43
  -45
  -47
  -50
  -53
  -56
  -58
  -61
  -64
  -67
  -70
  -74
  -78
  -81
  -86
  -90
  -95
  -99
  -104
Free cash flow, $m
  19
  22
  25
  27
  30
  33
  36
  40
  43
  47
  51
  55
  59
  64
  69
  74
  80
  86
  92
  98
  105
  113
  120
  128
  137
  146
  155
  165
  176
  187
  199
Issuance/(repayment) of debt, $m
  -15
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  13
  13
Issuance/(repurchase) of shares, $m
  3
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -14
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  13
  13
Total cash flow (excl. dividends), $m
  5
  25
  28
  31
  34
  37
  41
  44
  48
  52
  56
  60
  65
  70
  75
  81
  87
  93
  99
  106
  113
  121
  129
  138
  147
  156
  166
  177
  188
  200
  212
Retained Cash Flow (-), $m
  -30
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -31
  -32
  -34
  -35
  -37
  -39
  -41
  -43
  -45
Prev. year cash balance distribution, $m
 
  26
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  40
  16
  18
  21
  24
  26
  29
  32
  36
  39
  42
  46
  50
  54
  59
  64
  69
  74
  80
  86
  92
  99
  106
  113
  121
  129
  138
  147
  157
  167
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  38
  15
  16
  17
  18
  19
  20
  20
  20
  21
  20
  20
  19
  18
  17
  16
  15
  14
  12
  11
  10
  8
  7
  6
  5
  4
  3
  2
  2
  1
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
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Monarch Casino & Resort, Inc. (Monarch), through its subsidiary, owns and operates the Atlantis Casino Resort Spa (the Atlantis), a hotel/casino facility in Reno, Nevada. The Company also owns and operates Monarch Casino Black Hawk. The Company's segments include Atlantis and Monarch Casino Black Hawk. The Atlantis is located approximately three miles south of downtown in the area of Reno, Nevada. As of December 31, 2016, the Atlantis featured approximately 61,000 square feet of casino space; 824 guest rooms and suites; eight food outlets; two espresso and pastry bars; a 30,000 square foot health spa and salon with an enclosed year-round pool; two retail outlets offering clothing and traditional gift shop merchandise; an 8,000 square-foot family entertainment center, and approximately 52,000 square feet of banquet, convention and meeting room space.

FINANCIAL RATIOS  of  Monarch Casino&Resort (MCRI)

Valuation Ratios
P/E Ratio 24.6
Price to Sales 2.8
Price to Book 2.6
Price to Tangible Book
Price to Cash Flow 14
Price to Free Cash Flow 34.2
Growth Rates
Sales Growth Rate 7.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -31.6%
Cap. Spend. - 3 Yr. Gr. Rate 16.7%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 11.1%
Total Debt to Equity 11.1%
Interest Coverage 0
Management Effectiveness
Return On Assets 8.8%
Ret/ On Assets - 3 Yr. Avg. 7.5%
Return On Total Capital 9.9%
Ret/ On T. Cap. - 3 Yr. Avg. 8.4%
Return On Equity 11.4%
Return On Equity - 3 Yr. Avg. 10.2%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 51.6%
Gross Margin - 3 Yr. Avg. 51%
EBITDA Margin 24.4%
EBITDA Margin - 3 Yr. Avg. 23.2%
Operating Margin 18%
Oper. Margin - 3 Yr. Avg. 15.2%
Pre-Tax Margin 17.5%
Pre-Tax Margin - 3 Yr. Avg. 14.8%
Net Profit Margin 11.5%
Net Profit Margin - 3 Yr. Avg. 9.8%
Effective Tax Rate 34.2%
Eff/ Tax Rate - 3 Yr. Avg. 34%
Payout Ratio 0%

MCRI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MCRI stock intrinsic value calculation we used $217 million for the last fiscal year's total revenue generated by Monarch Casino&Resort. The default revenue input number comes from 2016 income statement of Monarch Casino&Resort. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our MCRI stock valuation model: a) initial revenue growth rate of 5.5% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for MCRI is calculated based on our internal credit rating of Monarch Casino&Resort, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Monarch Casino&Resort.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of MCRI stock the variable cost ratio is equal to 53.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $64 million in the base year in the intrinsic value calculation for MCRI stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Monarch Casino&Resort.

Corporate tax rate of 27% is the nominal tax rate for Monarch Casino&Resort. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the MCRI stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for MCRI are equal to 98.6%.

Life of production assets of 15.9 years is the average useful life of capital assets used in Monarch Casino&Resort operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for MCRI is equal to -10.1%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $234 million for Monarch Casino&Resort - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 17.574 million for Monarch Casino&Resort is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Monarch Casino&Resort at the current share price and the inputted number of shares is $0.6 billion.

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COMPANY NEWS

▶ Monarch Casino posts 2Q profit   [Jul-25-17 09:59PM  Associated Press]
▶ Monarch Casino tops 1Q revenue forecasts   [Apr-25-17 05:02PM  Associated Press]
▶ Which Companies Are Now Outperforming 95% Of All Stocks?   [Apr-11-17 11:33AM  Investor's Business Daily]
▶ Monarch Casino Gets A Composite Rating Upgrade   [11:28AM  Investor's Business Daily]
▶ Thinly Traded, But No. 1-Ranked Casino Stock Wins Rating Upgrade   [Apr-06-17 11:55AM  Investor's Business Daily]
▶ Monarch Casino posts 4Q profit   [Feb-22-17 04:10PM  Associated Press]
▶ Hedge Funds Are Dumping Monarch Casino & Resort, Inc. (MCRI)   [Dec-10-16 03:08PM  at Insider Monkey]
Financial statements of MCRI
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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