• It's Here!

    Etf Pro

    Get the big financial market moves right, bullish or bearish with Hedgeye’s ETF Pro.

  • It's Here

    MARKET EDGES

    Identify global risks and opportunities with essential macro intel using Hedgeye’s Market Edges.

In this environment, one would expect a stock that is down 85% YTD to be an overleveraged, covenant busting, illiquid, and free cash flow negative company lacking hard assets. While many of these adjectives apply to many companies within the gaming sector, none accurately describes Boyd Gaming. Oh and by the way, BYD should generate $2 per share in free cash flow next year for a 40% yield. That’s 40% after all capex and is based on reasonable numbers, not the Street’s.

No one is making the case that BYD’s fundamentals are rock solid right now or their upcoming quarter will be good. Quite the opposite. However, I don’t need to whip out my calculator to know that even if my discounted estimates are cut in half, the FCF yield would still be a whopping 20%.

From a liquidity standpoint, BYD has no significant maturities until 2013. Covenants shouldn’t be an issue either as leverage is coming down at the same time the leverage restriction rises. Please see the chart. EBITDA would have to fall over 25% below my estimate in Q4 to bust a covenant. Not likely.

Something is going on here. BYD dropped 13% today when the DOW rocketed up 400 points. Even HOT was up today. Somebody is blowing up.

Even in Q4 BYD maintains significant leeway before busing the leverage covenant