Boyd Gaming Q3 Earnings: Bland, Boring Work

Posted on: October 26, 2022, 02:14h. 

Last updated on: October 26, 2022, 02:53h.

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

Boyd Gaming (NYSE: BYD) delivered third-quarter results Wednesday afternoon, beating top and bottom-line estimates for the ninth consecutive quarter.

Boyd Gaming
Boyd Gaming’s Orleans Casino in Las Vegas. An analyst is forecasting big upside for the stock. (Image: YouTube)

In this calamitous market environment, Boyd being “boring,” as an analyst describes it, is actually a positive, as market participants search for clarity and dependability in the downtrodden casino equity space. Following the bullish quarterly update, Boyd shares are trading higher Wednesday while garnering support from Wall Street analysts.

In a note to clients, Stifel analyst Steven Wieczynski reiterated a “buy” rating on Boyd with a $78 price target, implying upside of nearly 42% from the October 25 close.

Boring could and should be viewed as a good thing in this current uncertain macro environment,” wrote Wieczynski. “While some investors will probably yawn at BYD’s consistent operating results and ask how much more is there to come, we would 100% disagree and welcome these kinds of steady results.”

The analyst lauded the Orleans operator sporting healthy operating margins and robust free cash flow-generating capabilities, which he noted are being funneled to investors in the form of buybacks and dividends.

Boyd Boring and Potentially Beneficial

Boyd runs 28 gaming venues across 10 states, including 11 in its home city, and it’s the dominant operator in downtown Las Vegas.

While the company has a significant Sin City presence, it doesn’t operate on the Strip. Rather, it emphasizes downtown and the Las Vegas locals segment. Its other venues are in regional markets. As highlighted by the third-quarter results, Boyd’s trends are sturdy, indicating customers aren’t yet scaling back on visits to the operator’s venues due to inflation and rising interest rates.

“While we aren’t sure when/if the consumer will start to crack, based on the current macro backdrop and the potential for some kind of consumer-led recession to rear its head sometime soon, we believe remaining cautious with our forward thinking is most prudent at this point,” added Wieczynski. “While BYD noted that their core customer trends have not weakened at all through October, we believe investors will probably continue to brush off that commentary and instead focus on ‘what’s to come over the next couple of months.’”

Boyd’s substantial Nevada footprint is potentially more attractive in times like these. That’s because the bulk of its venues in the Las Vegas area aren’t heavily dependent on tourists, but rather on locals who aren’t worried about high airfare and gas prices.

Boyd Risk/Reward Appealing

Shares of Boyd are down 16.46% year-to-date. But the gaming company’s aforementioned ability to generate free cash flow could be a sign the stock is deeply undervalued.

Wieczynski said the stock should trade around a free cash flow yield of 7% to 8%, implying a share price of $73 to $81 and that’s with factoring in a possible recession.

“With BYD shares showing an ~11% FCF yield, we believe it’s a matter of time before investors catch on and understand shares remain undervalued when compared to peers,” concluded the analyst. “You have a company that has a massively underlevered balance sheet, strong core fundamentals, real estate optionality and a call option around sports betting, yet trades at a discount to certain peers.”