Boyd Margin Story Impresses, Analyst Says M&A, Dividend Resumption Possible

Posted on: April 28, 2021, 09:51h. 

Last updated on: April 28, 2021, 11:17h.

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

Boyd Gaming (NYSE:BYD) reported better-than-expected first-quarter results on Tuesday. But the real story is ongoing margin expansion and signs that March traffic momentum is carrying over to April.

Boyd stock
A man walks in front of Boyd’s Fremont Casino in a vacant downtown Las Vegas during the pandemic. Analysts are enthusiastic on the stock. (Image: Fox5 Las Vegas)

That could be a sign the Orleans operator will deliver another round of impressive data for the current quarter, and some analysts are forecasting more upside for Boyd stock. Macquarie’s Chad Beynon rates the regional gaming operator “neutral,” but he boosted his price target on the name to $77 from $62. That implies upside of 11.5 percent from the April 27 close, and is well above the consensus forecast of around $60.

Boyd’s 100 percent regional model continues to see margin tailwinds due to structural changes brought on by COVID-19,” said Beynon in a note to clients.

“First-quarter margins expanded 1,200 basis points over 1Q19. April results have carried over from March, and hotel reservations are at the highest levels in the last year.”

Las Vegas-based Boyd operates 28 gaming venues across 10 states, including 11 in its home market. In Sin City, Boyd is the largest operator downtown, and derives a significant chunk of its revenue from the resurgent Las Vegas locals (LVLs) segment.

Sources of Strength for Boyd Stock

Mounting signs that Las Vegas locals are getting coronavirus vaccines and eager to return to their favorite casinos, coupled with Boyd’s enviable perch in serving that demographic, is a catalyst for the shares. But there’s more to the story.

In the first quarter, LVLs and Boyd’s downtown venues combined for 35 percent of earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR). The remainder derived from the operator’s casinos in the Midwest and the South. LVL margins were the best of the three segments, but revenue at midwestern and southern venues topped what was notched in the comparable period in 2019.

Margin expansion and revenue growth in the LVL demographic and regions outside Nevada can support Boyd stock, as downtown Las Vegas remains sluggish. Macquarie’s Beynon notes the operator’s market share in that part of the city is currently 10 percent, compared to a pre-pandemic clip of 25 percent.

He expects Boyd’s downtown earnings before interest, taxes, depreciation and amortization (EBITDA) will slide 49 percent this year compared to 2019, before rising six percent in 2022.

Looming Online Catalysts

While Boyd isn’t the name many investors think of when it comes to online sports betting, the company has levers in that arena via its five percent ownership of FanDuel – a trait some analysts believe isn’t accurately reflected in Boyd stock.

From an online standpoint, Boyd’s FanDuel partnership and proprietary iGaming launch (this quarter) should lead to positive EBITDA of $20 million in 2021,” said Beyon.

The analyst values the operators core land-based casino business at $59 a share, and online casinos and sports betting at $17.

He adds that as leverage decreases, Boyd could resume its dividend, which was suspended last year because of the pandemic, or seek out “accretive” merger and acquisition opportunities later this year.