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I’ve been hitting on the free cash flow/liquidity/balance sheet theme for quite some time. With this in mind it should be quite clear why I’ve been negative on the industry. A few companies do stand out favorably through this prism: PENN, WYNN, and now BYD. BYD recently suspended construction on Echelon, its huge development on the Las Vegas Strip. With one smart IRR decision, BYD management created huge liquidity, strong free cash flow, and put the company firmly in a position to deleverage. With its new found liquidity and cash flow BYD is in a strong position to maintain its dividend, currently yielding an industry high 6.8%. BYD should be able to generate at least $2 in free cash flow per share (after all capex), for a FCF yield of 22%.

Contrast this with MGM MIRAGE, which pays no dividend but is also building a multi-billion project on the Strip: CityCenter. MGM has been struggling to raise project financing for CityCenter at the same time it is forced to consider its options to fund huge debt maturities on its own balance sheet in 2009 and 2010.

The liquidity line has clearly been drawn.


Which one would you buy?