- So what does a company do in this environment? I say capitalize. Crush the competition. Boyd Gaming has this opportunity. BYD’s primary (and larger) competitor is Station Casino. With their bonds trading at between 8 and 30 cents on the dollar, Station is facing a high probability bankruptcy. BYD, on the other hand, is one of the few gamers with significant liquidity. I think BYD should aggressively utilize this huge competitive advantage. An effective strategy would be to advertise and market heavily, treat employees well, and most importantly, keep the slot product fresh.
- There is a lot of market share to take (see the 1st chart). Station generated over $1.2bn in net gaming revenues over the past 4 quarters versus only $800 million for BYD. Assuming just a 2% increase in share (see 2nd chart), BYD could generate an incremental $33m in EBITDA, translating into $0.23 in EPS or 33% of the 2009 consensus estimate of $0.70.
- BYD still faces uncertainty in the locals Las Vegas market and numbers are likely to go lower. However, the company seems to have a tremendous opportunity to capitalize on its liquidity and build market share. The results may not be immediately evident, but long-term gains could be substantial.
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