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Takeaway: Favorable macro backdrop, margin expansion, and numerous catalysts

It's been awhile since we've seen so many positive catalysts for this sell side whipping boy

Just A Teaser

I’m in Las Vegas for meetings and wanted to relay at least one highlight before I start day 2.  I’ve come away very positive on Boyd Gaming.  We will expound on our thesis points in upcoming posts but since some of the catalysts are fresh, time is of the essence.

We still worry about the regional markets and the declining base of slot players.  However, BYD maintains significant exposure to the Las Vegas locals market, an incremental positive in our opinion given the positive macro offset to tough nationwide casino demographics.  Even in the regional markets where we are less sanguine, BYD seems to have significant room for cost cutting and thus, margin improvement.  In New Jersey, Borgata is spending less and gaining market share.  And speaking of New Jersey, we cannot forget the future, which is in online gaming.  Only a handful of companies can boast of first mover advantages - and they are huge - in the future of federal or multi-state internet poker.  BYD is one of them.

So with a return to revenue growth in the LV Locals market and likely margin improvement everywhere, we actually could see earnings upside for the first time in a long time for BYD.  Investment ratings are mostly neutral, leaving plenty of room for upgrades, especially with potentially a positive earnings surprise and higher guidance combined with the reactive nature of many on the sell side.

Here are some upcoming catalysts:

Catalysts:

  • New Jersey tax court ruling should occur this month
    • It’s not in the numbers or guidance but a favorable property tax adjustment could result in $10m+ in annual EBITDA at Borgata.  Moreover, the last 4 years are being challenged so Borgata could also receive a $40-50m tax rebate.
  • G2E and DB/UBS investor conference in Vegas starting on 9/23
    • We expect BYD to show well and exude optimism
  • Earnings release in late October
    • We believe BYD is on track to beat consensus and provide solid guidance and commentary.
  • November approval for online gaming in New Jersey
    • New Jersey online gaming is a positive for Borgata and a marginal positive for BYD.  More importantly, BYD should have a great head start if and when online gaming rolls out nationally.  Online is the future people.