Shares of regional casino operator Boyd Gaming Corp. (NYSE:BYD) were higher by about two percent in midday trading Wednesday, a day after the company delivered third-quarter earnings. But some sell-side analysts are not impressed with the results.
For the quarter ending Sept. 30, Boyd earned 39 cents a share on revenue of $819.6 million. Wall Street was expecting earnings of 39 cents on turnover of $830.5 million. More than a quarter ($212.9 million) of June through September turnover was attributable to the company’s acquisitions of the Ameristar Kansas City, Ameristar St. Charles, Belterra Resort, Belterra Park and Valley Forge Casino Resort.
In its home market of Las Vegas, where the company operates the Aliante and the Orleans, among other casinos, revenue increased 2.2 percent year-over-year to $213.3 million with earnings before interest, taxes, depreciation and amortization per available room (EBITDAR) rising to the highest level in Sin City in 14 years.
While analysts weren’t overly impressed with Boyd’s third-quarter results, some liked the company’s performance among Las Vegas locals.
We believe the company was able to maintain market share in the face of a ramping Palms/Palace Station,” said Macquarie analyst Chad Beynon in a note out earlier today. “Orleans and Aliante remained the stars in the quarter. We are bullish on LV Locals fundamentals and believe BYD will continue to grow despite increased competition.”
Beynon noted that some of the sluggishness in Boyd’s numbers for the most recently completed quarter was attributable to bad weather in the Midwest, a region in which the company operates nine gaming properties across Illinois, Indiana, Iowa, Kansas, Missouri, and Ohio.
Cash Flow And Haircuts To Estimates
Boyd shares are up nearly 26 percent year-to-date, good for not only one of the best performances among regional gaming equities, but among large-scale commercial operators as well. A significant part of the bullish thesis on the stock this year has been the company’s ability to increase free cash flow (FCF).
Beynon believes Boyd can generate $380 million in discretionary FCF by the end of this year. But the company’s debt burden remains concerning.
“As of September 30, 2019, Boyd Gaming had cash on hand of $235.1 million, and total debt of $3.85 billion,” said the operator of the Gold Coast and Suncoast in Las Vegas.
With a “neutral” rating on the stock, the Macquarie analyst reiterated a 2019 EBITDA estimate on Boyd of $799 million, while trimming his 2020 forecast to $823 million from $830 million. Beynon did slightly boost his 2021 EBITDA projection to $861 million from $857 million.
Positives And Negatives
Boyd’s strength in Las Vegas and ability to keep a lid on costs were among the bright spots for the company in the third quarter. But there are also some areas the operator can improve.
“On the positive, BYD expanded margins in LVL, controlled corporate costs, and grew acquired asset EBITDA by 6% yoy,” said Beynon. “3Q and YTD margins of 26.1% (+175bp) and 26.8% (+108bp) remain slightly behind industry leading peers.”
The analyst pared his 12-month price target on Boyd to $30 from $33. The stock trades around $26.50 at this writing.