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I think management finally has their heads screwed on tight. Free Cash Flow, Return on Investment, and Internal Rate of Return have all reentered their vocabulary. My call is that we don’t see Echelon construction ramped up until 2010. The upshot? The dam has sprung a leak. Free cash flow is going to start pouring in. I’m talking real cash, not free cash flow before I spend billions with little associated ROI.


  • BYD should be able to generate $2.50 in net free cash flow next year. That is a 25% FCF yield. As I discussed in my 6/25/08 post, 15% is the magic number for the regional stocks where outsized returns have followed. By no means is BYD sitting on its cash flow. The dividend yield is 6% which is as high as I’ve seen for a gaming company. We’re big on dividend stocks right now at Research Edge.
  • How safe is that dividend? With Echelon on hold, BYD has tremendous liquidity. Unlike the rest of the industry, borrowing costs will not explode higher in 1 to 2 years. BYD maintains $2.4bn availability in its credit facility that doesn’t mature until 2013. The interest rate on that facility ranges from 0.625-1.625% above LIBOR. PENN is the only other liquid gaming company.
  • I’m not predicting blow out quarters but management has set the bar pretty low. Near term comps get a lot easier in the LV locals market and at Blue Chip in Indiana. They have been getting killed in both those markets. Of all the gaming markets, I think the Strip has the furthest to fall. BYD now has no exposure there. With gas prices declining, the regional markets could show some stability. With a 25% free cash flow yield, stability is all we need.
With Echelon on the back burner, cash flow pours in and BYD delevers
Comps begin to ease in Q3/Q4 2008