Boyd Gaming Reopening Demand, Free Cash Flow Trends Look Encouraging, Says Analyst

Posted on: June 10, 2020, 09:26h. 

Last updated on: June 10, 2020, 11:07h.

Todd Shriber @etfgodfather Read More

Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Boyd Gaming (NYSE:BYD), the owner of a dozen Las Vegas gaming properties, has reopened the bulk of its venues following the more than two-month shutdown caused by the coronavirus. Initial demand trends appear encouraging, according to an analyst that covers the company.

Boyd operates 29 casinos in 10 states, 21 of which are now open for business. Last month, the company restarted a combined eight gaming properties in Kansas, Louisiana, and Mississippi with 13 more, including nine in Las Vegas, joining the fold from June 1 to June 4.

For the assets that are opened, management is encouraged by the early visitation/spending patterns, but continues to caution that it’s still early on and a lot can change in the current uncertain operating environment,” said Stifel analyst Steven Wieczynski in a note obtained by Casino.org.

The analyst notes Boyd’s cost structure can decline even as demand increases, and that management believes the company can be free cash flow (FCF) positive at revenue that’s just 60 percent of 2019 levels. For individual properties, that percentage is even lower relative to last year’s tallies, notes Wieczynski.

More Reopenings Coming

Boyd management believes the company will restart the eight currently shuttered venues over the next month. That group includes the East Side Cannery, Eldorado, and Main Street Station in Las Vegas. Indiana casinos are expected to come back online in the middle of this month, while Ohio Gov. Mike DeWine said last week Buckeye State gaming venues can open their doors on June 18. Boyd owns two gaming venues in the Hoosier State and Belterra Park in Ohio.

Wieczynski notes that many Boyd venues reopened in advance of Memorial Day weekend and gamblers, flush with government stimulus cash, were eager to get out and enjoy life, creating a “perfect storm” for demand.

“While forward demand will be tough to predict in the near-term, management is extremely optimistic that their lower cost structure should remain in place even as demand creeps closer to ‘normal’ operating levels,” said the analyst.

Silver Lining Playbook

Wieczynski points out the Boyd management was able to find a “silver lining” in the COVID-19 shutdown, as it allowed the company to adjust operations to meet new supply/demand dynamics. The analyst notes executives compared the coronavirus closures favorably to the global financial crisis.

During that prior recession, visits to Boyd properties slipped just 10 percent. But consumer spending tumbled by half, making it difficult for the operator to reconfigure costs on the fly.

Addressing the hot online casinos and sports betting areas, segments that Boyd has exposure to, Wieczynski says the company continues to like its arrangement with FanDuel, and that it saw a spike in demand in Pennsylvania for its internet casino offering during the COVID-19 shutdown.

“One bright spot from the weeks since BYD’s retail casinos were closed has been iGaming at Valley Forge in Pennsylvania, where management noted the revenue run rate for the business has been 60% higher than it was when the company’s physical locations were open, with customer acquisitions up significantly,” said the analyst.

Boyd management said its online casinos business is profitable and that it expects to roll out that operation in other states as permitted.

Wieczynski has a “buy” rating and $28 price target on Boyd stock, implying upside of almost 22 percent from where it trades at this writing.