Black Hawk a Casino Market to Be Bullish On, Analyst Says

Posted on: April 4, 2023, 12:21h. 

Last updated on: April 5, 2023, 12:08h.

Todd Shriber @etfgodfather Read More

Expertise: Financial, Gaming Business, Mergers and Acquisitions.

The population of Black Hawk, Colo. is just 128, less than half what it was in 1999. But the casino market in the town located about 35 miles west of Denver is flourishing.

While it’s the smallest town in Colorado, Black Hawk is home to the state’s largest gaming scene — one that ranks as the 10th-largest and as the fastest-growing in the US. As such, there are investment implications, because four Black Hawk operators are publicly traded companies. In alphabetical order, they are Bally’s (NYSE: BALY), Caesars Entertainment (NASDAQ: CZR), Monarch Casino & Resort (NASDAQ: MCRI), and Penn Entertainment (NASDAQ: PENN).

In a recent report, Stifel analyst Jeffrey Stantial said Black Hawk trends impressed in the first quarter, and the town compares favorably against other regional casino markets.

All operators cited stable/healthy demand trends YTD, with no signs of pullback when drilling in by income or age cohort. Black Hawk market-wide growth continues to outpace the broader regional same-store average,” noted the analyst.

He has “buy” ratings on Caesars and Monarch, and “hold” grades on Bally’s and Penn Entertainment.

Tailwinds, Headwinds for Black Hawk Casino Market

Black Hawk’s casino market has some structural advantages, including Colorado’s fast-growing population and a policy that went into effect in 2021 that allows gaming operators to offer more table games with higher limits.

Analysts believe the higher table limits will allow Black Hawk casinos to keep more local bettors in the town and away from Las Vegas, while potentially converting more day visitors into overnight guests. On the other hand, Black Hawk operators face headwinds, such as a shallow labor pool, the need to pay premium wages, and high inflation.

“Given these constraints, most properties are forced to rely on costly temp agencies to varying degrees. Outside of labor, utilities costs have been prone to flare-ups, with water a uniquely impactful expense, given local supply constraints. Planned nongaming developments will likely further add to [the] demand for water, and drive up costs. Lastly, food costs were cited as a headwind, with the market-leading assets (Monarch; Ameristar) anecdotally more aggressive in passing through inflation via pricing,” added Stantial.

Monarch: Black Hawk Casino Standout

Monarch Casino’s namesake Black Hawk property is the freshest integrated resort in the town and one of the highest-tier casino-hotels in any of the three Colorado gaming towns.

Obviously, that property benefits Monarch the most, particularly considering the company owns just two casinos. But it also provides modest boosts to some Black Hawk rivals.

“Given the quality of the product, pricing power remains robust. Given MCRI’s hotel pricing strategy, forthcoming room renovations at Ameristar will likely translate to higher ADR for Monarch as well. For PENN, Ameristar continues to capture spillover from Monarch as the second-largest property in the market,” concluded Stantial.