Boyd Earnings Impress, Analyst Raises Target, Says Some Cost Cuts Permanent

Boyd Gaming (NYSE:BYD) stock is trading higher Wednesday. That’s after the casino operator knocked the cover off the earnings ball, reporting second-quarter earnings per share (EPS) and revenue that handily beat Wall Street estimates.

 

The Sam’s Town operator earned $1 a share on sales of $893.6 million in the April through June period. Analysts expected earnings of 95 cents on revenue of $808.74 million. Like other operators focusing on Las Vegas locals and regional markets, Boyd is benefiting from margin expansion during the coronavirus pandemic. But market observers are pondering how durable that trend is. Steven analyst Steven Wieczynski says it could be permanent in Boyd’s case.

 

We believe a lot of the cost saves that have been achieved during COVID-19 should prove permanent, even as certain ‘margin dilutive’ revenues come back online,” said the analyst in a note to clients.

 

In “materially” lifting 2021 through 2023 earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR) on Boyd, Wieczynski reiterates a “buy” rating on the stock, while boosting his price target to $88 from $82. That implies upside of more than 54 percent from the July 27 close.

 

Boyd Stock Can Handle Delta Headwinds

Like other gaming equities, Boyd struggled in recent weeks as investors departed casino operators because of the emergence of the delta variant of the coronavirus.

 

Still, the Orleans operator has its supporters, with some calling it a top mid-cap idea. While mask mandates and travel warnings are back in play, there’s not yet overt talk about another round of gaming venue closures. As Stifel’s Wieczynski notes, even if that storm arrives, Boyd has the resources with which to weather it.

 

“While shares of BYD could trade sideways around variant news for the foreseeable future, we would remind investors that even if certain gaming markets were forced to close or reduce capacity again, BYD’s balance sheet remains in excellent shape, and our belief is demand would return very quickly once variant fears subside, similar to what we witnessed over the last ten months,” he said.

 

Management commentary indicates Boyd, which runs 28 gaming venues across 10 states, including 11 in its home city of Las Vegas, is off to a solid start in the third quarter. That’s with little alteration to customer spending and visitation trends against the delta variant backdrop.

 

FanDuel, iGaming Drivers

While Boyd is often viewed as a land-based casino operator, the broader investment thesis includes a growing internet casino business and a five percent stake in sportsbook giant FanDuel — traits that are often overlooked with this stock.

 

“Our relationship with FanDuel continues to generate value for our shareholders, both through our revenue sharing arrangement, as well as the significant value of our percent equity stake in FanDuel Group,” said Boyd CEO Keith Smith on a conference call. “Based on our strong performance so far this year, we remain firmly on track to generate more than $20 million in EBITDAR from sports betting and interactive gaming this year.”

 

Stifel’s Wieczynski says if iGaming and sports betting surprise to the upside in terms of growth, Boyd’s FanDuel stake could eventually be worth much more than is currently reflected in the share price.