Keith bought BYD in the Hedgeye Virtual Portfolio at $7.01. According to his model, the TRADE range is $6.88-$7.14 and the TREND resistance is at $7.24.
BYD recently announced the acquisition of Peninsula Gaming which has the potential of transforming investor sentiment to the positive. The sell side is almost universally negative on BYD and short interest is high. Aside from being hugely EPS and FCF accretive, the acquisition adds stable and growing cash flow without increasing leverage. Following a solid Q1 beat on all metrics, we are also optimistic on BYD’s Q2 and 2012 earnings. Even though it has been only one month, Borgata has been holding up better than expected in the face of the opening of Revel and BYD’s regional properties continue to outperform.
BYD looks very cheap on existing and the higher, realistic estimates. While facing the same long-term issues as other domestic gaming companies – tough demographics and ties to housing prices – BYD is relatively undervalued with more upside to 2012/2013 estimates.