Shares of small cap casino and resort Monarch (US:MCRI) rallied 21% higher to $74.57 by mid morning trading on Thursday after the company released third quarter results to investors that came in well above expectations. After an initial strong morning rally, MCRI’s share price consolidated over the day and closed at $71.17 with a gain of 15.6% for the day.

MCRI has outperformed broader equity markets over 2022 with the stock trading broadly flat after being almost 30% higher and -20% lower in between. The latest rally brings investors to a neutral year to date return for holding the stock.

For the third quarter, Monarch grew sales by 19.8% over the year to $133.4 million and beat forecasts from sell-side analysts that were predicting around $122 million.

Adjusted EBITDA expanded at a faster rate of 28.3% over the year to $51.7 million and beat analyst expectations by 24%.

Net income expanded 23.2% over the year to $27.5 million and resulted in diluted earnings per share for shareholders of $1.41, beating consensus EPS estimates by 16.5%.

Management noted that net income was negatively impacted by legal and consulting costs relating to ongoing litigation with contractor PCL Construction Services. The impact during the third quarter was -$2.8 million.

CEO John Fahari discussed how the ramp-up of the expanded and enhanced Black Hawk property continues at a strong pace which resulted in market share gains and aided the group’s strong operating momentum.

Fahari also told investors that “Using cash flow from operations, we’ve now paid down a substantial portion of our debt. Given our continued cash flow growth and low leverage, we are evaluating a full range of capital allocation options, including potential share repurchases under our existing 2.9 million share repurchase authorization and potential dividend.”

During the third quarter MCRI made $38 million in debt repayments and currently has no outstanding borrowings under the $70 million revolving credit facility.

Monarch has not historically paid a dividend before and may attract new investors if they begin for the first time.

MCRI experienced a broker recommendation upgrade from Stifel analyst Jeffrey Stantial following the result. Stantial increased his rating from ‘hold’ to ‘buy’ and bumped his target up $7 to $77 following the earnings beat.

Stantial discussed a range of factors that led to the upgrade but highlighted potential earnings upside to their out-year estimates with a better visibility on the return of capital and possible M&A catalysts for the stock.

Elsewhere at Jefferies investment bank, analyst David Katz held firm on his ‘hold’ call for the stock but increased his price target from $63 to $68.

Katz noted that while the earnings potential of Black Hawk is high, macroeconomic concerns over the economy still deserve attention and are included in the bank’s valuation forecasts.

Katz thinks the stock may stay range-bound for some time…

On average MCRI has a consensus ‘overweight’ recommendation and average $78.50 price targets from the four institutions covering the stock.

Fintel platform analysis suggests MCRI has experienced above-average levels of institutional interest this year, explained by an ownership accumulation score of 78.49.

This score ranks MCRI in the top 7% when compared to 32,047 other screened companies.

Monarch currently has 416 institutions on the register that own a total of 16.5 million shares. Some of these institutions include: Janus Henderson Group, JP Morgan Chase & Co, Macquarie Group, Davenport Small Cap Focus Fund.

This article originally appeared on Fintel

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