Boyd Gaming: Bet on Vegas with Less Risk

Boyd Gaming (BYD) is a casino operator in the United States. Las Vegas Locals, Downtown Las Vegas, the Midwest, and the South are home to its 28 locations. The stock has experienced a major run since pandemic lows. However, it is down over 11.5% over the last month and 16% from its 52-week high.

I am bullish on BYD stock. (See Analysts’ Top Stocks on TipRanks)

Betting on Vegas

The Omicron variant has again spooked the markets. It has hit travel and entertainment stocks particularly hard. Fears of further lockdowns, travel restrictions, and other adverse effects are warranted. During the height of the pandemic, Las Vegas was shut down completely; however, it has come roaring back.

Still, fears that travel will once again slacken cannot be taken lightly. Boyd Gaming relies much less on out-of-state travelers and much more on local populations, making it much less risky than other entertainment stocks.

In the recent past, the Nevada Gaming Control Board’s monthly casino win total surpassing $1 billion was considered a barometer that the house was doing well. The state reached this level throughout 2019. When the pandemic hit in early 2020, the numbers plummeted. While some predicted a long and slow recovery, just the opposite has happened.

Gaming win totals have now exceeded $1 billion statewide for the previous seven straight months. Some months have been as high as $1.3 billion. This shows the increasing health of the state and the increasing demand for gaming.

Boyd Gaming should continue to see increased demand even if travelers become cautious, due to its focus on locals. This is evident by the fact that Boyd Gaming produced positive operating income even in Fiscal Year 2020.

Revenues Have Bounced Back While Profits Reach All-Time Highs

Revenues for Boyd Gaming have nearly returned to 2019 levels, as would be expected based on the sentiments above. Over the trailing twelve months (TTMs), revenue has reached $3.1 billion, still slightly off the $3.2 billion in 2019. That isn’t the whole story. Revenues may be down slightly, but profit is up significantly. This is due to the focus on profitable offerings.

Gross profit is up from $1.98 billion in 2019 to $2.30 billion over the TTMs – an increase of 16%. Operating income is also up from $473 million to $796 million over this same period. This amounts to a whopping 68% increase. Earnings per diluted share also reflect this, rising from $1.38 in 2019 to $3.83 over the TTMs.

Because of these impressive results, the stock trades at a GAAP PE ratio of just 14.9 based on the prior twelve months and 11.8 on a forward basis. In a market where value is challenging to come by, the perceived risks have caused Boyd Gaming to become undervalued. The company had a PE ratio over 20 for most of 2019.

Boyd Gaming does have a significant amount of long-term debt on the balance sheet to service. In the last report, the company showed $3.3 billion in debt and has paid $213 million in interest expense of the TTMs. The $3.3 billion is down from the company’s recent high of $4 billion on December 31, 2018. This debt is significant but typical of prior periods and not a threat to the company’s operations.

Wall Street’s Take

Turning to Wall Street, Boyd Gaming has a Strong Buy consensus rating, based on six Buys assigned in the past three months. The average Boyd Gaming price target of $88.33 implies 52.2% upside potential.

Conclusion on Boyd Gaming

Boyd Gaming’s customer base is focused on the local populations near its locations. Because of this, the company enjoys the benefits of increased gaming activity with less risk associated with travel and tourism.

The stock is typically lumped in with companies who depend on tourism which provides an opportunity to buy at a discount. The Nevada gaming revenues have been very strong for seven straight months and show no signs of slowing. The companies focus on profitability is also a plus.

Thus, long-term investors should consider Boyd Gaming as a value play in the gaming sector.

Disclosure: At the time of publication, Bradley Guichard did not have a position in securities mentioned in this article.