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BYD reports Q3 earnings on Tuesday morning. The stock has acted like it will be ugly. In this case, looks probably won’t be deceiving. I’ve included a chart below that details management guidance and consensus estimates. They will all be too high, but I don’t care. I care about two things: 1) free cash flow per share will be at least $1 next year and 2) BYD can get into 2009 without busting the leverage covenant.

It looks to me like the 2009 consensus EBITDA estimate is too high by 5-10%. Even if I knock it down by 20%, BYD still generates $1.35 to $1.50 per share in net free cash flow and still doesn’t violate the leverage covenant in 2009. For those of you who haven’t looked in awhile, BYD is trading at $4. That is a yield of 34-38% on very conservative numbers. Pretty ridiculous I must say.

BYD benefits from an escalator in its leverage restriction covenant to 6.5x in 2009 from 6x in 2008. There is some risk of a Q4 covenant bust but BYD would have to see its EBITDA decline 30% below the current consensus estimate of $116m. Again, I think there is probably 10% downside to that number but certainly not 30%.

Anyone expecting a near term inflection point in business fundamentals need to look elsewhere. But BYD shouldn’t be lumped with the rest of the gamers. Liquidity is very good and free cash flow has the potential to be off the charts compared to the stock price.

Guidance and estimates are too high but $1.50 in net FCF is very doable