ADDING BOYD GAMING (BYD) AS A BEST IDEA LONG

The Hedgeye Gaming, Lodging, and Leisure Team is adding BYD as a best idea LONG, and will be hosting a call today at 11am to discuss our views on the stock. Here is a brief summary of our thesis.

 

SUMMARY OF OUR THESIS:

  • Regional Gaming Stability = Earnings Visibility 
    • As predicted, August would look weak and pressure the stocks. However, the states will begin releasing stronger September results beginning next week. 

    • The underlying demand/supply fundamentals in regional gaming are much improved and likely sustainable

  • Operational improvements and favorable market exposure could drive upside

    • Atlantic City and LV Locals could be surprise growth drivers. Supply exodus in AC is mostly to Borgata and the sustained housing recovery is finally translating into gaming revenue growth. These markets generate higher incremental margins for BYD's aggregate portfolio.
    • BYD's management changes are paying dividends  
  • Valuation

    • 15% free cash flow yield and 8x EV/EBITDA. PNK going out ~10x EV/EBITDA and PENN/GLPI split around 10-11x.
    • We believe BYD is undervalued at current prices