Boyd Gaming Stock Has Array of Upside Sparks, Analyst Raises Estimates

Posted on: April 1, 2021, 08:22h. 

Last updated on: June 23, 2021, 01:13h.

Todd Shriber @etfgodfather Read More

Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Boyd Gaming (NYSE:BYD) stock is a catalyst-rich story, with plenty of levers to pull to generate upside, despite already being up 37.37 percent year-to-date.

That’s the take of Stifel analyst Steven Wieczynski, who, in a note to clients Thursday, reiterates a “buy” rating on the Orleans operator, while lifting his price target to $70 from $60. That new forecast implies upside of 18.6 percent from the March 31 close. His new view comes less than two months after he last boosted his projection on the regional gaming name.

Longer-term, we continue to believe spending/visitation trends will remain relatively healthy across the majority of BYD’s operating markets, while their diminishing cost structure should ultimately allow for greater flow-through,” said Wieczynski.

He raised his 2021 through 2023 revenue and earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR) estimates on the gaming name.

Adding to the Boyd bull case is that many of the cost reductions the operator realized during the coronavirus pandemic are likely to remain permanent. That’s even as business normalizes and old revenue streams are replenished. Those efficiencies are part of what’s becoming an increasingly attractive margin expansion story for the Aliante operator.

Plenty of Reasons to Like Boyd Stock

Las Vegas-based Boyd operates 28 gaming venues across 10 states, including 11 in its home market. Between its dominant positioning in downtown Sin City and its regional portfolio, the company is levered to key demographics, such as Las Vegas locals (LVLs) and the 55-and-up age group.

Older gamblers largely sat out initial coronavirus reopenings, limiting rebounds for regional operators. With vaccines becoming more accessible, a wave of pent-up demand from the 55+ demographic could soon be unleashed, supporting gross gaming revenue (GGR) recovery in the second half of this year.

“The 55+ age demographic has play levels that are down over 40%, and we expect this demographic to return quickly in 2H21, which will support and boost regional GGR trends,” said Wieczynski.

He adds that a combination of improved marketing schemes, lower labor costs, and the elimination of some profit-sapping amenities could help Boyd expand margins by 500 to 1,000 basis points relative to pre-pandemic levels.

Underappreciated Sports Betting Story

Boyd stock usually isn’t viewed as a sports wagering play. But the company owns five percent of FanDuel — a trait the investment community may not fully appreciate.

The sports betting euphoria trade should continue to play out,” notes Wieczynski.

“We believe there are 8-12 states that could go down the path of legalizing sports betting this year, which should continue to support long-term total addressable market estimates (no matter how crazy they are). Investors will start to understand that BYD’s five percent ownership stake in FanDuel is undervalued,” he continued. 

There is something to the notion that Boyd’s FanDuel stake isn’t fully reflected in the former’s stock price. Should parent Flutter Entertainment (OTC:PDYPY) proceed with spinning out the sportsbook operators at a valuation comparable to that of rival DraftKings (NASDAQ:DKNG), FanDuel could be worth roughly $25 billion or more.

That means Boyd’s stake is hypothetically worth $1.25 billion, or about 19 percent of its current market capitalization.