BYD: COMPANY DELIVERS, STOCK DOES NOT

I was wrong on the stock yesterday but believe that higher estimates will soon be reflected in the stock.

 

 

If I was a criminal and privy to inside information that BYD was going to beat the Q1 EBITDA estimate by $7.5m (a 6% beat) and provide in-line Q2 guidance, I’d be poor right now.  BYD closed down 4% yesterday and I would’ve thought up at least 4%. 

 

The only negative I can see in the quarter was in the LV Locals market.  Even that region would’ve beaten our EBITDA estimate with normal hold.  The problem is the Street was too high, which we knew, since they tend to overreact to the Nevada gaming figures which are gross, not net.  However, our estimates for the other regions and Borgata were so much higher, and ended up being correct, that we thought the good far outweighed the bad relative to consensus.  I guess we underestimated the Street’s disdain for BYD and their ability to so narrowly focus their investment thesis on the one negative.  However, I don’t think the Street can continue to hold back a stock for very long against the fundamental tailwind of higher earnings.

 

BYD’s commentary about Borgata should’ve pleased a sell-side overly concerned with Revel’s impact on Borgata.  Don’t get me wrong, Borgata will take its lumps and it’s difficult to disprove the bear story with only a few weeks of data.  However, due to demand patterns, we expect the property to beat estimates for the next two quarters before finally succumbing to the slack visitation in the seasonally slow Q4.  We will cross that bridge when we get to it. 

 

In terms of guidance, it was pretty much what we expected.  Since they resumed providing guidance a few quarters ago, management has developed a pattern of setting a low bar that is easily beatable – strategy followed by IGT, HOT, and others.  Once again, the low bar didn’t exactly jive with their positive forward commentary.  We thought the Street would’ve figured that out by now.  On the Q4 earnings call, they low balled Q1 which seemed obvious at the time.  Indeed, Q1 actual was much better.  We expect the same for Q2.