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Monarch Casino & Resort Inc. (MCRI - Snapshot Report) has reported second-quarter 2011 earnings of 22 cents per share, which came in way ahead of the Zacks Consensus Estimate of 13 cents and the year-earlier earnings of 16 cents.

Net revenue grew 2.8% year over year to $37.2 million and surpassed the Zacks Consensus Estimate of $36.0 million. The company showed improvement in most of its departments and gained market share. Continuous upgrades in the premier resort destination in northern Nevada helped increase the market share. Seasonality of demand also aided the company’s growth in the second quarter.

Inside the Headline Numbers

Revenue generated in casino, food and beverage other operating departments increased 4.2%, 5.4% and 4.1%, respectively, while revenue from the hotel department decreased 7.4% due to fewer rooms available for sale.

The company also experienced a downside in its cost structure. Casino operating expense remained flat year over year. As a percentage of casino revenue, casino operating expense was 36.8%, down 130 basis points (bps).

Food and beverage operating expense as a percentage of food and beverage revenue remained flat at 44.9%. Although Hotel operating expense was flat with the year-ago quarter at $1.6 million, hotel operating expenses as a percentage of hotel revenue was up 130 bps.

Additionally, decreased borrowing levels in the quarter led to lower interest expense.

Balance Sheet

Monarch Casino & Resort exited the quarter with a total cash balance of $10.0 million and no long-term debt. During the quarter, the company paid down its credit facility by $5.0 million, which lowered the outstanding balance to $17.0 million.      

Our Take

Following the quarter’s improved performance, we expect the Zacks Consensus Estimate for Monarch Casino & Resort to rise in the upcoming quarter. The U.S. market as well as casino and resort business, especially at Las Vegas is also rebounding.

Monarch Casino & Resort, through its subsidiary, Golden Road Motor Inn Inc., owns and operates the Atlantis Casino Resort Spa, a hotel/casino facility in Reno, Nevada, which features approximately 61,000 square feet of casino space.

However, Monarch does not have any exposure to the emerging markets like most of its giant peers. Additionally, the core market of Monarch, Nevada, is under high unemployment pressure.

Monarch currently retains a Zacks #4 Rank, which translates into a short-term Sell rating. We are maintaining our long-term Neutral recommendation on the stock. One of its peers Boyd Gaming Corp. (BYD - Snapshot Report) currently retains a Zacks #2 Rank, which translates into a short-term Buy rating.

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