Boyd Shares Cheap, Says Analyst, Eastside Cannery Remaining Shuttered

Shares of Boyd Gaming (NYSE:BYD) jumped 2.51% today. That’s after the regional casino operator reported sturdy second-quarter results late Tuesday amid ongoing strength in the Las Vegas locals demographic.

Boyd Gaming’s Orleans Casino. Las Vegas remains a key earnings contributor for the company. (Image: KSNV)

Speaking of Boyd’s exposure to its home city, the operator plans to keep the Eastside Cannery Casino closed until demand trends warrant reopening. The venue has been shuttered for nearly 30 months, and is now the only the gaming property in the Las Vegas Valley that was closed during the early days of the coronavirus pandemic for which plans haven’t been announced.

At this point, our view is that, we’ve been able to kind of leverage the benefit of Sam’s Town Las Vegas which is near Eastside Cannery and until we see perhaps more demand or something else to suggest we should consider reopening in Eastside Cannery, for now it will remain closed,” said Boyd CEO Keith Smith on a conference call with analysts.

Earlier this month, Boyd rival Red Rock Resorts (NASDAQ:RRR) announced it will permanently close Fiesta Henderson, Fiesta Rancho, and Texas Station, demolish those venues, and sell the real estate. That leaves Eastside Cannery as the lone Las Vegas casino that’s a relic of the COVID-19 crisis.

For Boyd, Viva Las Vegas

Boyd runs 28 gaming venues across 10 states, including 11 in its home city, and that Sin City footprint is paying off for the company.

Amid increasing concern that persistently high inflation and recession speculation will crimp casino operators, Boyd’s Las Vegas exposure is seen as beneficial, owing to increasingly favorable demographics in the area, including residents that fled higher tax states. Many of those new locals paid cash for real estate, and have the resources to continue visiting Boyd venues, even during a recession.

“While we aren’t sure when/if the consumer will start to crack, based on the current macro backdrop and the potential for a full-blown recession to rear its head sometime soon, we believe being as cautious as possible with our forward thinking is most prudent at this point,” wrote Stifel analyst Steven Wieczynski in a note to clients.

He trimmed his price target on Boyd to $73 from $84, but maintains a “buy” rating on the stock.

Boyd Bargain

Potentially supporting the Boyd investment thesis is that the shares are inexpensive, and as Wieczynski notes, even in a recession, the gaming company can keep leverage at tolerable levels while continuing to pursue buybacks and dividends.

“We believe the risk/reward with BYD shares is too good to pass up given our belief that the recent stock correction is now embedding a significant slowdown in the consumer,” adds the analyst. “If flocking to safety is what investors will start gravitating to moving forward, based on BYD’s significant FCF generation and their pristine balance sheet, we believe BYD could be an outperformer in the regional gaming space for the foreseeable future.”

He estimates Boyd can generate north of $5 a share in free cash flow.

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