As reported by: The Reno Gazette-Journal
Shares of Reno-based Monarch Casino & Resort, the owner of the Atlantis Casino Resort & Spa, stood at $37.03 a share Tuesday at the close of trading, up by almost 400 percent from a year ago.

The surge is the result of the increasing profit margin at the Atlantis, coupled with other external factors, such as an improving overall stock market and a diminished perceived threat to the property from California Indian gambling, analysts and company officials said.

“With the fantastic performance of the company over the last 12 months, 2004 has truly been a breakout year for Monarch,” said Nick Danna, a New Orleans gaming research analyst for Sterne, Agee & Leach, a retail brokerage firm based in Birmingham, Ala.

“The locals business there has really taken off, the (Reno-Sparks) Convention Center business really kicked in during 2004, and they are so cost-conscious that when they drive incremental revenues, a large portion of that becomes cash flow.”

Danna said during the last two fiscal quarters, for every dollar of revenue generated by Monarch, about 60 to 70 percent ended up in the cash flow column.

“We're hoping it is reflective of our results,” said John Farahi, co-chairman and chief executive of Monarch, when asked about the steady curve upward of its stock price. “People are gaining more confidence about the Reno market right now. Wall Street is getting more confident now that they've seen gaming spread in California and still we are able to put out the type of results that we have accomplished.”

Danna echoed that sentiment, and said it appears most of Monarch's new investors are large institutional buyers - investment banks, insurance companies, pension funds and the like.

Monarch is also enjoying some positive national press. For the past two years, the company has landed on the list of the 100 fastest growing small companies in the United States, as ranked by Fortune Small Business magazine. In October, Farahi was ranked third among the best performing casino operator CEOs in Casino Journal, an industry trade magazine.

Morningstar Inc., a company that crunches numbers for individual stocks and mutual fund, reported Monday that the year-to-date total return on an investment in Monarch is more than 240 percent. Morningstar pegs the company's market capitalization (the number of outstanding shares multiplied by the current price per share) at $356 million.

“I think this must be the largest price increase in the industry, percentage-wise,” said Reno gaming consultant Ken Adams. “As the market got better, Monarch started to look better and better, relative to everything else in this area. I think it's certainly fair to say that they're a player out there.”

The small company with one property now has a share price higher than International Game Technology and Caesars Entertainment, among the top names in gaming.

Monarch went public in August 1993.

“For a long, long time we've believed that the stock was grossly under-valued,” Danna said. “They finally are getting the recognition and credit they deserve.”

That said, Danna gave Monarch a downgrade on Monday, recommending investors “hold” the stock rather than “buy” more of it. He said the $37 mark seems about right for the company.

The knock on Monarch before this year had always been twofold, Danna explained. Investors were hesitant because the Atlantis is Monarch's only property, and the liquidity of large quantities of stock was also an issue, he said.

But given the performance of that single property this year, especially after the opening of the new Thunder Valley Casino near Sacramento in mid-2003, both issues have dissipated, he added.

In late October, Monarch reported its second straight record quarter of year-over-year earnings, with a 51.5 percent increase in net income for the period, compared with the third quarter of 2003. Net income hit $5.55 million, or 59 cents a share, up from $3.66 million, or 39 cents a share. Gross revenues were up by almost 11 percent.

The company's average volume of shares traded has been above 100,000 every trading day since Nov. 3 - two weeks ago.

On Monday, it smashed its own volume record, with more than 670,000 shares traded.

On the day Monarch released its latest earnings report - Oct. 26 - volume was 359,000. The all-time busiest day for the company's stock before Monday was Nov. 8, when more than 460,000 shares changed hands. The previous high had been 417,000 shares traded on July 2, 2002.

The period of Oct. 5 through Nov. 4 marked the first time Monarch's monthly average volume hit six figures, at 294,309. It veered close in the previous month, at just above 99,000 average shares traded daily.