Intrinsic value of Monarch Casino&Resort - MCRI

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$29.25

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$29.25

 
Intrinsic value

$32.90

 
Up/down potential

+12%

 
Rating

hold

 
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*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 0.5

 

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
  9.80
  9.32
  8.89
  8.50
  8.15
  7.83
  7.55
  7.30
  7.07
  6.86
  6.67
  6.51
  6.36
  6.22
  6.10
  5.99
  5.89
  5.80
  5.72
  5.65
  5.58
  5.53
  5.47
  5.43
  5.38
  5.34
  5.31
  5.28
  5.25
  5.23
Revenue, $m
  217
  238
  260
  284
  308
  333
  359
  386
  414
  443
  474
  505
  538
  573
  608
  645
  684
  724
  766
  810
  856
  904
  953
  1,006
  1,060
  1,117
  1,177
  1,239
  1,305
  1,373
  1,445
Variable operating expenses, $m
 
  127
  139
  151
  164
  177
  190
  205
  219
  235
  251
  265
  282
  300
  318
  338
  358
  379
  401
  424
  448
  473
  499
  526
  555
  585
  616
  649
  683
  719
  757
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
  193
  206
  220
  235
  249
  264
  281
  297
  315
  333
  349
  368
  388
  408
  431
  453
  476
  501
  526
  553
  580
  609
  639
  671
  704
  738
  774
  811
  850
  891
Operating income, $m
  39
  45
  54
  64
  73
  84
  94
  105
  117
  129
  141
  157
  170
  185
  199
  215
  231
  248
  265
  284
  303
  323
  344
  366
  389
  414
  439
  466
  494
  523
  554
EBITDA, $m
  54
  63
  73
  84
  95
  107
  119
  132
  145
  159
  173
  188
  204
  220
  237
  255
  273
  293
  313
  334
  356
  379
  403
  429
  455
  483
  512
  543
  575
  609
  644
Interest expense (income), $m
  0
  1
  1
  1
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
Earnings before tax, $m
  38
  45
  53
  62
  72
  82
  92
  103
  114
  126
  138
  153
  167
  181
  195
  210
  226
  242
  259
  277
  296
  316
  336
  358
  381
  405
  429
  456
  483
  512
  542
Tax expense, $m
  13
  12
  14
  17
  19
  22
  25
  28
  31
  34
  37
  41
  45
  49
  53
  57
  61
  65
  70
  75
  80
  85
  91
  97
  103
  109
  116
  123
  130
  138
  146
Net income, $m
  25
  33
  39
  46
  53
  60
  67
  75
  83
  92
  101
  112
  122
  132
  142
  153
  165
  177
  189
  202
  216
  231
  246
  261
  278
  295
  313
  333
  353
  374
  396

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
  295
  323
  351
  381
  412
  445
  478
  513
  549
  587
  626
  667
  709
  754
  800
  847
  897
  949
  1,004
  1,060
  1,120
  1,181
  1,246
  1,314
  1,384
  1,458
  1,536
  1,617
  1,702
  1,791
Adjusted assets (=assets-cash), $m
  269
  295
  323
  351
  381
  412
  445
  478
  513
  549
  587
  626
  667
  709
  754
  800
  847
  897
  949
  1,004
  1,060
  1,120
  1,181
  1,246
  1,314
  1,384
  1,458
  1,536
  1,617
  1,702
  1,791
Revenue / Adjusted assets
  0.807
  0.807
  0.805
  0.809
  0.808
  0.808
  0.807
  0.808
  0.807
  0.807
  0.807
  0.807
  0.807
  0.808
  0.806
  0.806
  0.808
  0.807
  0.807
  0.807
  0.808
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
Average production assets, $m
  214
  235
  257
  280
  303
  328
  354
  381
  408
  437
  467
  498
  531
  565
  600
  636
  674
  714
  755
  799
  844
  891
  940
  992
  1,045
  1,102
  1,160
  1,222
  1,287
  1,354
  1,425
Working capital, $m
  4
  -24
  -26
  -29
  -31
  -34
  -36
  -39
  -42
  -45
  -48
  -51
  -54
  -58
  -61
  -65
  -69
  -73
  -77
  -82
  -86
  -91
  -96
  -102
  -107
  -113
  -119
  -125
  -132
  -139
  -146
Total debt, $m
  26
  32
  38
  45
  52
  59
  66
  74
  81
  90
  98
  107
  116
  126
  136
  146
  157
  169
  181
  193
  206
  219
  233
  248
  263
  279
  296
  314
  332
  351
  372
Total liabilities, $m
  61
  67
  73
  80
  87
  94
  101
  109
  116
  125
  133
  142
  151
  161
  171
  181
  192
  204
  216
  228
  241
  254
  268
  283
  298
  314
  331
  349
  367
  386
  407
Total equity, $m
  234
  228
  249
  272
  295
  319
  344
  370
  397
  425
  454
  484
  516
  548
  583
  618
  655
  694
  734
  776
  820
  865
  913
  963
  1,016
  1,070
  1,127
  1,187
  1,250
  1,316
  1,384
Total liabilities and equity, $m
  295
  295
  322
  352
  382
  413
  445
  479
  513
  550
  587
  626
  667
  709
  754
  799
  847
  898
  950
  1,004
  1,061
  1,119
  1,181
  1,246
  1,314
  1,384
  1,458
  1,536
  1,617
  1,702
  1,791
Debt-to-equity ratio
  0.111
  0.140
  0.150
  0.160
  0.170
  0.180
  0.190
  0.200
  0.210
  0.210
  0.220
  0.220
  0.230
  0.230
  0.230
  0.240
  0.240
  0.240
  0.250
  0.250
  0.250
  0.250
  0.260
  0.260
  0.260
  0.260
  0.260
  0.260
  0.270
  0.270
  0.270
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
  33
  39
  46
  53
  60
  67
  75
  83
  92
  101
  112
  122
  132
  142
  153
  165
  177
  189
  202
  216
  231
  246
  261
  278
  295
  313
  333
  353
  374
  396
Depreciation, amort., depletion, $m
  15
  17
  19
  20
  22
  23
  25
  26
  28
  30
  32
  31
  33
  36
  38
  40
  42
  45
  48
  50
  53
  56
  59
  62
  66
  69
  73
  77
  81
  85
  90
Funds from operations, $m
  45
  50
  58
  66
  74
  83
  92
  102
  112
  122
  133
  143
  155
  167
  180
  193
  207
  222
  237
  253
  269
  287
  305
  324
  344
  365
  386
  409
  434
  459
  485
Change in working capital, $m
  1
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
Cash from operations, $m
  44
  57
  60
  68
  77
  85
  95
  104
  114
  125
  136
  147
  158
  171
  184
  197
  211
  226
  241
  257
  274
  291
  310
  329
  349
  370
  393
  416
  440
  466
  493
Maintenance CAPEX, $m
  0
  -13
  -15
  -16
  -18
  -19
  -21
  -22
  -24
  -26
  -27
  -29
  -31
  -33
  -36
  -38
  -40
  -42
  -45
  -48
  -50
  -53
  -56
  -59
  -62
  -66
  -69
  -73
  -77
  -81
  -85
New CAPEX, $m
  -26
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -31
  -32
  -34
  -35
  -37
  -38
  -40
  -41
  -43
  -45
  -47
  -49
  -51
  -54
  -56
  -59
  -62
  -65
  -68
  -71
Cash from investing activities, $m
  -25
  -34
  -37
  -39
  -42
  -44
  -47
  -49
  -52
  -55
  -57
  -60
  -63
  -67
  -71
  -75
  -78
  -82
  -86
  -91
  -95
  -100
  -105
  -110
  -116
  -122
  -128
  -135
  -142
  -149
  -156
Free cash flow, $m
  19
  23
  23
  29
  35
  42
  48
  55
  63
  70
  78
  86
  95
  104
  113
  123
  133
  144
  155
  166
  179
  191
  205
  218
  233
  248
  264
  281
  299
  317
  337
Issuance/(repayment) of debt, $m
  -15
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
  18
  19
  20
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
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
  18
  19
  20
Total cash flow (excl. dividends), $m
  5
  29
  29
  36
  42
  49
  56
  63
  71
  79
  87
  95
  104
  113
  123
  133
  144
  155
  167
  179
  191
  205
  219
  233
  248
  264
  281
  299
  317
  337
  357
Retained Cash Flow (-), $m
  -30
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -31
  -33
  -34
  -36
  -37
  -39
  -40
  -42
  -44
  -46
  -48
  -50
  -52
  -55
  -57
  -60
  -63
  -66
  -69
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
 
  34
  8
  13
  19
  25
  31
  37
  44
  51
  58
  65
  72
  80
  89
  98
  107
  116
  126
  137
  148
  159
  171
  183
  196
  210
  224
  239
  255
  271
  288
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
 
  33
  7
  12
  16
  19
  22
  25
  27
  29
  30
  31
  31
  31
  30
  29
  27
  25
  23
  21
  19
  16
  14
  12
  10
  8
  7
  5
  4
  3
  2
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Monarch Casino & Resort, Inc., through its subsidiaries, owns and operates the Atlantis Casino Resort Spa, a hotel/casino facility in Reno, Nevada; and the Monarch Casino Black Hawk in Black Hawk, Colorado. As of July 20, 2016, its Atlantis Casino Resort Spa featured approximately 61,000 square feet of casino space; 824 guest rooms and suites; 8 food outlets; 2 espresso and pastry bars; a 30,000 square foot health spa and salon with an enclosed year-round pool; 2 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. The company’s Atlantis Casino Resort Spa also featured approximately 1,450 slot and video poker machines; approximately 37 table games, including blackjack, craps, roulette, and others; a race and sports book; a 24-hour live keno lounge; and a poker room. Monarch Casino & Resort, Inc. was founded in 1972 and is based in Reno, Nevada.

FINANCIAL RATIOS  of  Monarch Casino&Resort (MCRI)

Valuation Ratios
P/E Ratio 20.4
Price to Sales 2.4
Price to Book 2.2
Price to Tangible Book
Price to Cash Flow 11.6
Price to Free Cash Flow 28.4
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 9.8% 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 17.418 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 $0.5 billion.


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COMPANY NEWS

▶ 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]
Stock chart of MCRI 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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