Gaming stocks are getting drilled Monday. But there are some pockets of good news in the space, with Boyd Gaming (NYSE:BYD) being the prime example.
In new coverage of the Aliante owner, Loop Capital analyst Daniel Adam tags the stock with a “buy” rating and an $86 price target. That implies upside of nearly 75% from the July 8 close. As Adam notes, Boyd is quietly achieving a rare feat: Profitability in the iGaming and online sports betting arena.
Unlike other domestic online sportsbook operators, BYD has consistently shown profitability in its sports betting business via its partnership and market access rights agreements with FanDuel,” writes Adam. “In fact, BYD expects online gaming to contribute roughly $30 million of positive earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR) this year, up from $24 million last year and ~$10 million in 2020.”
Las Vegas-based Boyd owns 5% of FanDuel, which is the largest online sportsbook operator in the US. The company also has a growing online casino operation, including the pending acquisition of Pala Interactive from California’s Pala Band of Mission Indians. Boyd currently offers live money online casinos in New Jersey and Pennsylvania.
For Boyd, Local Benefits
The regional casino firm runs 28 gaming venues across 10 states, including 11 in its home city.
Outside of Las Vegas, Boyd’s various footprints are far from exotic. But these days, that’s a plus in the gaming industry. Casino operators with international exposure, i.e. Macau, are being repudiated by investors. Not only are those companies contending with currency headwinds, they’re also grappling with another round of temporary closures in Macau.
Those aren’t problems for Boyd. While the operator could be vulnerable in some of its markets to persistently high inflation, Loop’s Adam says the Las Vegas locals and downtown segments remain “vibrant.”
The analyst also praised Boyd’s capital return plans, free cash flow-generating capabilities, and real estate optionality. The Orleans operator owns essentially all of the property on which its gaming venues reside, meaning it has an effective avenue for raising capital, should it be needed.
Tepid on Red Rock
Adam also initiates coverage on Red Rock Resorts (NASDAQ:RRR), but in more reserved fashion compared to Boyd. The analyst rates that stock “hold,” with a $36 price target. That implies upside of about 9% from the July 8 close.
In voicing a broadly constructive tone on Red Rock, owing in large part to its robust Las Vegas locals exposure, Adam says the next two years for the company are more centered around new investments than free cash flow.
The operator is bringing a Wildfire casino to downtown Las Vegas — its first venue in that area — and recently broke ground on the Durango in the southwest corner of the city.
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