Posted on: October 25, 2023, 03:35h.
Last updated on: October 25, 2023, 03:35h.
Shares of Boyd Gaming (NYSE: BYD) experienced a significant decline today, dropping by over 11%. This comes after the regional casino operator reported third-quarter earnings per share that fell short of Wall Street estimates.
On Tuesday, the operator of The Orleans announced earnings of $1.36 per share on revenue of $903.16 million. This fell short of the earnings estimate of $1.47 per share and the sales estimate of $880.71 million. While the revenue beat was impressive, market analysts and investors were disappointed by the earnings miss. They also expressed concern about management’s commentary indicating that the upcoming opening of Red Rock Resorts’ Durango Casino & Resort in Southwest Las Vegas could divert business from Boyd’s Las Vegas locals casinos.
Consequently, several analysts, including Stifel’s Steven Wieczynski, have lowered their price targets for Boyd Gaming. Wieczynski maintains a “buy” rating on the stock but has adjusted his price forecast from $83 to $78.
Wieczynski wrote, “We believe this could actually be a clearing event as expectations will finally get reset and estimates should move lower. We continue to believe the majority of stocks under our coverage will never work until estimates get reset to a level in which investors feel comfortable that those revised estimates are achievable under any softer macro backdrop.”
Boyd Gaming, based in Las Vegas, operates 28 gaming venues across 10 states.
Boyd Gaming Report Could Be Sign of Regional Weakness
As the first major regional casino operator to report third-quarter results, Boyd’s weak earnings raise concerns in the investment community about the future of the sector.
This concern is not unfounded, as some regional gaming markets are already showing signs of strain. While there is no evidence of economic contraction on the Las Vegas Strip and Macau is experiencing a strong rebound, regional casino stocks face macroeconomic headwinds.
The combination of high inflation and rising interest rates is causing consumers, particularly those in many gaming markets outside of Las Vegas, to reduce their spending. This presents a potential challenge for operators like Boyd. However, if investors can adjust their forecasts to a more practical level, Boyd Gaming may prove to be one of the more resilient regional casino names.
Wieczynski further added, “While we aren’t certain when or if the consumer will materially crack, given the current macroeconomic backdrop and the possibility of a recession, we believe exercising caution in our forward thinking is most prudent at this point. BYD’s forward commentary remains mostly encouraging, indicating that their core customer hasn’t slowed down through September.”
Boyd Has Buffers
Despite the challenging macroeconomic environment for regional casino markets, Boyd Gaming has strategies in place to mitigate the effects of an economic downturn.
For instance, at the end of the third quarter, Boyd had $269.2 million in cash on hand. The company is committed to using this cash for stock repurchases and its dividend program.
Wieczynski concluded, “In addition to a commitment to improved operating efficiency, we expect management to remain equally committed to returning excess capital to shareholders. We also continue to value BYD’s extensive real estate ownership, which provides support for the company’s valuation even during difficult times and offers opportunities for strategic value creation in the long run.”