Bain: Boyd ‘Holds Cards’ for ‘Opportunistic M&A’

Boyd Gaming (NYSE: BYD) reported second-quarter results late Thursday and while executives from the regional casino operator limited commentary on mergers and acquisitions (M&A), Wall Street is convinced the gaming company is in prime position to capitalize on upcoming opportunities.

In a note to clients, Texas Capital analyst David Bain said Boyd “is in a unique position to capitalize on” a brisk consolidation environment in the casino industry, adding that the right deal could be a “large potential stock catalyst.” Much of the speculation around Boyd and industry consolidation involves the Suncoast operator being a potential buyer of assets that Caesars Entertainment (NASDAQ: CZR) could be forced to part with if it’s acquired by Fertitta Entertainment Inc.

On a conference call with analysts, Boyd, as it has in the past, expressed interest in deal-making, but didn’t get into specific possibilities.

Las Vegas-based Boyd had $322.7 million in cash on hand at the end of the second quarter and one of the lowest leverage ratios in the industry, confirming it has the ability to add to its portfolio via acquisition should it choose to do so.

Boyd in Strong Position for M&A

It’s widely expected that with Caesars and Tilman Fertitta working on a deal and with Barry Diller’s People Inc. (NASDAQ: PPLI) pursuing MGM Resorts International (NYSE: MGM), a slew of gaming venues could come to market after those deals. Analysts believe Boyd is among a small number of companies that could be credible buyers of assets that come up for sale.

However, Boyd is likely to be a selective shopper and it’s unlikely to rush into an acquisition that doesn’t involve ownership of real estate. That significantly lengthens the odds of Boyd buying an MGM property, should one hit the market, and it limits the pool of Caesars venues from which Boyd could select. Bottom line: Boyd doesn’t need to rush into a deal.

“The business is performing at a very high level,” added Smith on the call. “We’re returning significant dollars to our shareholders. We have a strong balance sheet. And so we don’t need to do M&A, but if the right opportunity comes along, we certainly have our eyes open, we’re not afraid to execute.”

Boyd Q2 Results Were Solid

Underscoring why it doesn’t need to hurry into an acquisition, Boyd posted solid second-quarter results with earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR) beating the consensus estimate by 3%.

The operator’s Las Vegas locals segment posted earnings before interest, taxes, depreciation and amortization (EBITDA) that was 3% above forecasts, but 6% below the year-earlier figure — a decline that was largely attributable to softness at destination properties such as The Orleans.

Softness in the Las Vegas locals business was offset by strength at Boyd’s regional casinos located in the Midwest and the South. EBITDA in that segment jumped 4% year-over-year while margins increased by 20 basis points.