Boyd Gaming Earnings Beat, Margins Earn Analyst Praise, But Stock Falters

Posted on: October 27, 2020, 12:50h. 

Last updated on: October 27, 2020, 01:32h.

Boyd Gaming (NYSE:BYD) delivered better-than-expected third-quarter results late Monday, enough to draw applause from some sell-side analysts. But shares of the regional gaming company swooned Tuesday, as investors fret about rising coronavirus case counts across the US.

Boyd Gaming
Boyd Gaming’s Gold Coast casino in Las Vegas. An analyst is bullish on the stock as margins improve. (Image: Las Vegas Review-Journal)

The operator of The Orleans and Sam’s Town in Las Vegas earned 38 cents a share on revenue of $652.2 million during the July through September period. Wall Street expected earnings of 17 cents a share on turnover of $610 million. Earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR) was $238.8 million, rising 12 percent year-over-year.

Margin expansion, an oft-cited catalyst for regional operators in the wake of the pandemic, was a primary reason Boyd’s September quarter results topped expectations.

Impressive doesn’t even do it justice when referring to BYD’s 3Q20 margin improvement, said Stifel analyst Steven Wieczynski in a note to clients today.

Although the theme of favorable revenue mix, reduced marketing expense, and streamlined labor costs benefiting operating margins in a post-COVID regional gaming operator world has been well-discussed over the past several months, we would argue BYD’s 3Q20 margin performance far exceeded investors’ expectations,” Wieczynski continued. 

He rates the stock a “buy,” with a $48 price target, up from his previous estimate of $28 and implying upside of roughly 50 percent from where it currently trades.

Widespread Improvement

Boyd operates 29 casinos in 10 states, including in its home market of Sin City. But the margin expansion accrued in the recently completed quarter wasn’t confined to a particular region.

At the company’s Midwest and Southern venues, margins jumped more than 1,000 basis points while, boosted by strength in the locals’ segment, Las Vegas margins increased 1,600 basis points, according to Stifel’s Wieczynski.

Following the pandemic-induced closure period earlier this year, regional gaming companies are becoming more nimble, eliminating less-profitable offerings and, in some cases, reducing headcount.

“What we are most encouraged by is that business trends have been extremely consistent and stable since BYD reopened its properties,” said the analyst. “While we would expect rated play to be strong, it’s clear that even unrated play is healthy as well.”

He adds that while there’s been fear in the investment community that gaming equities would be vulnerable to other entertainment options reopening and consumers losing government stimulus cash, Boyd’s visitation and spending patterns should remain robust for the foreseeable future.

Long-Term View

Following a 14.33 percent rally over the past month, it could take some time for Boyd stock to reach the $48 level Wieczynski is forecasting. But it has catalysts to drive upside, including a sports betting strategy that’s largely underappreciated relative to peers.

Boyd operates retail sportsbooks in states where it’s permitted to do so, and partners with FanDuel on brick-and-mortar and online books. The gaming company’s approaching to this fast-growing market is unique and requires less in the way of capital commitments.

“Although the potential upside in a ‘bull’ outcome scenario is not as high, we believe BYD’s approach could prove a far more efficient use of capital, as it sits back and collects a share of revenue generated through its licenses while not having to engage in what is likely to become a fierce promotional battle for market share,” said Wieczynski.