Boyd Gaming Has ‘Underappreciated’ Catalysts, Says Analyst

Posted on: February 17, 2021, 10:08h. 

Last updated on: February 17, 2021, 11:29h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Shares of Boyd Gaming (NYSE:BYD) are trading lower Wednesday. That’s despite a better-than-expected fourth-quarter earnings report and bullish comments from some sell-side analysts.

Boyd Gaming
The Aliante Casino Resort Las Vegas. An analyst is bullish on operator Boyd’s prospects. (Image: YouTube)

On Tuesday afternoon, the Orleans operator said it earned 73 cents a share on the basis of generally accepted accounting principles (GAAP) on revenue of $635.9 million in the final three months of 2020. Analysts expected per share earnings of 34 cents on sales of $632.27 million.

Management commentary signals that although visitation in downtown Las Vegas — a core market for Boyd — remains slack, there’s strength in the Las Vegas locals (LVL) segment in terms of customer spend and time of visits. That could be a sign things are going well for the operator to start the current quarter.

Another day, another regional gaming operator putting up a very strong quarter. It’s getting boring right? No way,” said Stifel analyst Steven Wieczynski in a note to clients today. “While some investors would argue that most of the positive momentum around core operating trends and sports betting has already been embedded in BYD’s share price, we would argue there is more to come.”

The analyst rates Boyd a “buy” with a $60 price target, implying upside of almost 10 percent from where the stock closed on Feb. 16.

Boyd Bright Long-Term Outlook

Over the near-term, margins may have to carry the day for Boyd, as folks in the 65 and up age demographic stay away from gaming venues until COVID-19 vaccines are more readily accessible.

Many casino operators, particularly those with deep regional portfolios, such as Boyd, are in the same boat. But the Aliante operator is realizing significant cost improvements, many of which will be permanent when the pandemic is a thing of the past. Those efficiencies are bolstering margins, with some market observers noting Boyd’s earnings before interest, taxes, depreciation and amortization (EBITDA) surged in the second half of 2020 despite temporary shutdowns. Some investors say Boyd’s 2022 EBITDA could be 20 percent higher in 2022 than it was in 2019.

“Longer-term, we continue to believe spending/visitation trends will remain relatively healthy (once the country goes back to normal) across the majority of BYD’s operating markets, while their diminishing cost structure should ultimately allow for greater flow through,” said Wieczynski. “Once virus cases plateau and the country gets more vaccinated, we believe there will be significant pent-up demand for consumers to return to casinos in full force.”

Other Favorable Catalysts

At the end of last year, Boyd had $519.2 million in cash on hand against debt of $3.95 billion. Should it need capital, the company has levers to pull, including ownership of its real estate and a five percent stake in sports betting giant FanDuel.

“Looking longer-term, we identify several value creation drivers, including strategic optionality around the company’s predominantly wholly-owned real estate portfolio, deleveraging opportunities, and low-risk sports betting strategy, that feel underappreciated in the context of the current share price/valuation,” adds Wieczynski.

The operator is targeting an April launch for its Stardust Casino iGaming platform in Pennsylania, which should speed along the operator’s exposure to the fast-growing internet casino segment.