Jefferies Equity Research analyst David Katz came away from a tour of the casinos in Black Hawk, Colorado, saying the gambling halls support a bullish view of that market. He cited recent capex expenditures by Caesars Entertainment, Monarch Casinos & Resorts, and Penn Entertainment as catalysts.

These investments, he wrote, “should generate stronger returns than other mature markets, and future investment focus is prudent.” He also attributed his bullishness to the 2021 removal of bet limits in the Rocky Mountain State, saying that should particularly redound to the benefit of Monarch, which has plowed $400 million into the historic mining community.

Monarch “overshadows its competitors,” Katz opined. He attributed its market dominance (a 30 percent share) to “to its exceptional casino offerings and amenities following the recent $400M renovation and expansion and the prominence of its physical location off Route 119.”

Katz also reported that Monarch management sees further opportunities for expanding its reach, as foot traffic to the casino is now 14 percent higher than it was pre-COVID. He lauded Black Hawk as one of the few regional markets still in a growth stage.

Katz projected that Monarch will generate $285.6 million in revenue from Black Hawk and $90.7 million in cash flow during the current fiscal year. He predicted the company would engender another $220 million in revenue from its Atlantis casino in Reno, along with $76.4 million in property-level cash flow.

Those estimates were, however, below Wall Street consensus figures. The Street expects Monarch to earn $512 million in revenue and $171.5 million in cash flow this year.

The analyst called Ameristar’s Black Hawk casino “a solid second.” He wrote, “The property looked notably fresh and well kept. The extensive amenities offered ranging from meeting spaces to bars and restaurants are better than a majority of the casinos in the region and represent an attractive aspect that should drive foot traffic.”

Katz believed, though, that Ameristar needs further physical investment in order to achieve ownership’s goal of enlarging its 24 percent market share. He predicted $225.6 million in revenue and cash flow of $97.2 million.

Although Caesars’s nearby Horseshoe casino has seen improved performance of late, Katz attributed this to the property’s proximity to Monarch’s, more than to an increased emphasis on Caesars Rewards. “Additionally, customers have been enjoying an improved experience following the $40M hotel room, slot machine, and table game renovation in 2019.”

Given the strength of the Caesars brand, Katz believed the Horseshoe would remain competitive with its larger brethren. It holds a nine percent market share and generates $11 million in cash flow, according to Jefferies.

Lastly, Katz turned his attention to The Lodge Casino, owned by Jacobs Entertainment. He observed that The Lodge “appears to be positioned in a differentiated segment relative to the other properties we toured.”

Lodge management emphasized various 2019 improvements, including in slot machines, amenities, and the parking area, the latter “critical given the limited real estate in the market.” Despite a managerial focus on Reno at present, Katz thought that “as demand evolves in Black Hawk, there is potential to contemplate expanding its footprint and capacity,” notably by quadrupling the number of hotel rooms, which currently stands at 50.

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