The Las Vegas locals market is in rough shape and the aggregate numbers will continue to look ugly. The only positive for the market is that housing and employment began deteriorating earlier than the rest of the country and could pull out of it earlier. Unfortunately, we are not there yet.
- 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.