Boyd Gaming Could Face Near-Term Pressure, Long-Term Outlook Strong

Posted on: January 24, 2021, 12:44h. 

Last updated on: January 24, 2021, 02:42h.

Boyd Gaming (NYSE:BYD), one of the dominant operators in downtown Las Vegas, could be challenged over the near-term because of the lingering coronavirus pandemic. But its long-term outlook is compelling.

Those are the sentiments of Stifel analyst Steven Wieczynski, who, in a note to clients last Friday, lowered estimates on the regional gaming company. He did so while reiterating a “buy” rating and lifting his price target to $60 from $54. That implies upside of nearly 20 percent from the Jan. 22 close.

The analyst estimates the Orleans and Sam’s Town operator will earn $1.70 a share on revenue of $2.77 billion this year, and $2.71 on turnover of $3.10 billion in 2022. Because of  COVID-19 restrictions, casinos across the US are operating at limited capacity, constraining near-terms earnings potential.

We are lowering our near-term estimates to account for softer visitation patterns witnessed in 4Q20, and, so far, in 1Q21, given heightened COVID restrictions that have been implemented across many of BYD’s operating markets,” said Wieczynski. “We believe until virus cases start to plateau and the vaccination progress accelerates, many states will continue to restrict social gathering venues (including casinos).”

Investors are at peace with the pandemic’s impact on Boyd stock, as the name is up 16.71 percent year-to-date and 129 percent over the past six months.

Be Patient with Boyd

Boyd operates 29 casinos in 10 states, including 11 in its home market of Las Vegas. Several of the company’s Sin City venues remain shuttered, owing to the coronavirus crisis.

“Longer-term, we continue to believe spending/visitation trends will remain relatively healthy (once the country goes back to normal) across the majority of BYD’s operating markets, while their diminishing cost structure should ultimately allow for greater flow through,” said Wieczynski. “We believe a lot of the cost saves that have been achieved during COVID-19 should prove permanent, even as certain revenues come back online.”

The analyst notes investors are coming to terms with the fact that the first six months of 2021 could be rough on gaming companies in terms of traffic and visitation trends, adding that market participants are focusing on the back half of the year.

Pragmatic Sports Betting Approach

These days, investors are enthusiastic about sports betting equities. Boyd isn’t the most direct play on that theme. But its exposure shouldn’t be overlooked.

“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,” notes the Stifel analyst.

Boyd owns five percent of FanDuel. Should Flutter Entertainment Plc (OTC:PDYPY), which owns the remainder of FanDuel, spin out that business at a valuation similar to that of DrafKings (NASDAQ:DKNG) — roughly $20 billion — that would value Boyd’s stake at $1 billion. That’s a healthy percentage of the casino operator’s market capitalization of $5.56 billion.