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BYD: OVERTAXED NO MORE

Takeaway: Court’s ruling means big refund for Borgata and higher profits ahead

The bad news:  The Tax Court of New Jersey thinks that Borgata is worth 61% less than previously.  The good news:  who cares because that means Borgata is getting a property tax refund of an estimated $40-50 million for 2009/2010 and likely a similar amount for 2011/2012.  Importantly, that could mean net EBITDA gains of $20-25 million annually beginning in 2013.

In our 9/13/13 note, “CATALYSTIC BYD”, we highlighted this ruling as a potential catalyst.  However, we had estimated the refund at $40-50 million for 4 years, not 2.  Assuming BYD wins on appeal, this catalyst is much bigger than even we had imagined.

So what is this worth to BYD?  Assuming the $40-50 million is correct and doubling it to reflect 2011 and 2012, that alone increases the value of BYD’s stock by $0.23-0.29 or 2% (BYD owns half of Borgata).  Going forward, the $20-25 million annual tax reduction at Borgata is worth another $0.83-1.03 in value to BYD’s stock price or 6-8%.  If it holds up on appeal, the New Jersey tax situation could be an 8-10% catalyst to the value of Boyd Gaming stock.

Maybe the only certainty in life are death and taxes, but lower taxes means more life for this catalystic stock.