Boyd Soars Following Surprising Financial Update, Analyst Sees ‘Three Team Parlay’ Propelling Stock

Posted on: July 29, 2020, 10:02h. 

Last updated on: July 29, 2020, 11:35h.

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

Boyd Gaming (NYSE:BYD) stock is higher by nine percent in midday trading. That’s after the regional gaming company delivered second-quarter results late Tuesday that were significantly less bad than Wall Street expected. It prompted one analyst to wax bullish on the name today.

Boyd Gaming Stock Soars On Results
Boyd’s Main Street Station in Las Vegas. Analysts are enthusiastic about the stock following a surprising Q2 update. (Image: Las Vegas Review-Journal)

The Sam’s Town operator said it lost 96 cents a share on revenue of $209.68 million in the June quarter. But those numbers were far better than the $1.45 loss on turnover of $199.61 million forecast by analysts, indicating there are green shoots for some regional gaming equities.

In the current, trying operating environment for gaming companies, “less bad” can be interpreted as “good,” and that may be the case with Boyd stock Wednesday. The name is flirting with its highest levels since early June after Stifel analyst Steven Wieczynski reiterated a “buy” rating on the shares with a $28 price estimate. He points to a “three team parlay” scenario propping up the stock going forward.

We expect three items to carry shares sharply higher in the near-term: Broadly better than expected 2Q20 margin/operating performance, lower than projected 2Q20 cash burn, and management commentary indicating the strong June operating performance has continued into July,” Wieczynski said.

Boyd stock is higher by 31 percent over the past 90 days, but still resides 33.49 percent below its 52-week high.

Margin Improvement, Regional Drivers

Boyd operates a dozen casinos in its home market of Las Vegas, nine of which reopened early last month. The company’s ability to drive margin improvement in the Las Vegas locals (LVL) segment and at its properties in the Midwest and the South (MW/S) is one reason for the ebullient post-earnings reaction.

“BYD was able to produce margin improvement in excess of 1,000bps across its MW/S and LVL portfolio from the date upon which the respective properties opened through the end of 2Q20,” said Wieczynski.

Strength in the LVL demographic is notable because Strip operators’ recovery efforts are being hindered by a lack of business traffic, leading to low weekday occupancy rates, and the reluctance of many travelers to board planes until a coronavirus vaccine is available. Those issues underscore the importance of Boyd’s regional portfolio as a vital contributor to the equity’s long-term performance.

Boyd ended the quarter with $1.31 billion in cash and said that 25 of the 26 properties it reopened since May generated positive free cash flow (FCF). The California Hotel and Casino in downtown Las Vegas is the exception.

Real Estate, Sports Betting

Other points in Boyd’s favor include its real estate ownership and the emerging US sports betting market, the latter of which is often cited as a catalyst for an array of regional operators.

The company owns nearly all of the real estate associated with its 29 gaming venues, giving it a possible monetization lever to pull if needed. In sports betting, Boyd partners with FanDuel, an approach Wieczynski notes should pay off over the long-term.

“Finally, while others are taking a more aggressive tack to address the emerging US sports betting opportunity, we actually like BYD’s approach, as the company has partnered with one of the pre-eminent brands/operators to ‘run’ its B2C-facing sports betting operations,” said the analyst.