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Improving Strip trends and MGM’s earnings release could make BYD the derivative play

Keith added BYD to the Hedgeye virtual portfolio as a LONG this morning at $8.93.  While there were some encouraging signs from its latest quarterly report (i.e. margin improvement, strong regional results, and stabilization of the LV Locals market), the stock has traded off. 

We believe there are a couple of catalysts ahead for BYD.  First up is MGM’s earnings call on August 8th, where we think management will praise the robust LV Strip results in Q2.  BYD could be bid higher as investors look for other ways to play gaming – the thesis being that LV locals improvement should follow the Strip.  July-to-date, BYD’s stock is down -2% while MGM is up 14%.  The second catalyst should be a Q3 beat.  BYD’s decision to resume issuing guidance, its first since it guided for Q3 2008, is a good sign.  We think its 3Q 2011 guidance is conservative and results may come in at the high end of the range.