Boyd Gaming: A Bull-Case Theory

In this article, we summarize a bullish thesis posted on VIC regarding Boyd Gaming Corporation (BYD) in July when BYD was trading at $54. Currently BYD stock is trading at $68.66, near its 52-week highs at $71.65. So, BYD shares gained nearly 30% since the publication of this thesis. In July, BYD’s trailing EV/EBITDAR multiple was 6.5, suggesting potential upside amidst strategic capital deployment and growth initiatives.

Boyd Gaming (BYD) is trading near its 52-week highs at around the $71.65 mark, enjoying a healthy run-up in value over the three months.

A lot of it is linked to the multiple strategic steps it has taken in bolstering its financials, which involves lowering its share count by 15% and reducing its debt load from $4.0 billion to $2.9 billion, posting a net leverage ratio of just 2.5x EBITDAR. In maintaining such financial discipline, it continues investing in its properties. Moreover, despite the run-up in value, BYD stock still offers some upside, trading slightly above 8x EBITDAR (in July it was trading at 6.5x EBITDAR).

Furthermore, a huge part of its hidden value is linked to its 5% stake in FanDuel, valued at $875 million, or approximately $9.20 per share. Furthermore, the Las Vegas Locals segment alone clocks in at a whopping $5.7 billion based on peer Red Rock Resorts (RRR) multiple of nearly 11x EBITDAR. With these two assets in play, BYD’s regional casino operations are currently valued at just 2.7x EBITDAR, offering a sizeable discount to its historical trading multiple range of 7-10x EBITDAR.

Moreover, BYD’s strategy of partnering with FanDuel for online and mobile sports betting continues paying off, enabling it to avoid the cash burn experienced by its competition, including Penn Entertainment (PENN) and Caesars Entertainment (CZR). Moreover, it’s important to note that it operates a highly conservative capital deployment strategy, avoiding moonshot projects that don’t align with its management approach.

Looking forward, the most likely path to unlocking BYD’s hidden value would be through an acquisition or private equity take-private transaction. Private equity firms, attracted by BYD’s owned real estate and steady cash flow, could scoop up the firm at around the 8x EBITDAR mark and potentially offload those real estate holdings at over 10x EBITDAR. Alternatively, FLUT (FanDuel’s parent company) could purchase BYD, leveraging its existing partnership and gaining market access while obtaining BYD’s share of online sports betting revenues and casino operations at an attractive multiple.

Furthermore, it is important to note that in healthy economic periods, BYD has historically traded between 8.5 and 10 times EBITDAR. Reverting to this range would imply a valuation of $95 to $128 per share, offering a sizeable upside from current levels. The potential catalysts, disciplined management, and strong underlying assets make Boyd Gaming stock an attractive investment opportunity.

While we acknowledge the potential of Boyd Gaming (BYD) as an investment, our conviction lies in the belief that some AI stocks offer even greater potential for delivering higher returns within a shorter timeframe. If you’re looking for an AI stock with strong growth prospects and trades at less than 5 times its earnings, check out our latest report on the cheapest AI stock to scoop up today.

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Disclosure: None. This article was originally published at Insider Monkey.