Analyst Barry Jonas of Truist Securities had a satisfying lunch with Boyd Gaming Director of Corporate Finance Jake Mulcahy yesterday. Jonas’ appetite was sated by Boyd’s “strong consistent cash flow” and ongoing free cash flow generation. His one qualm was that Wall Street continues to value Boyd in “dislocated” fashion as a pure operating company even though it owns the vast majority of its real estate-a strategy on which Boyd leadership has held fast.
Mulcahy described the consistency of Boyd’s revenue performance throughout all segments in 2022 as “remarkable” and said it continued into the third quarter. As for the effects of inflation and potential recessions, Mulcahy said Boyd players “tend to be relatively higher-income and would likely not be the first impacted. Players who have dropped out of the database are likely more lower-worth who may have benefited from prior [governmental] stimulus and have likely been replaced with higher-quality gamblers.”
Nor are gas prices a deterrent. Mulcahy told Jones there had been “little impact” on California drive-in business to its Las Vegas casinos. Also, important Hawaiian fly-in business to Downtown has returned to 85 percent, even 90 percent of pre-pandemic levels (and these are deemed “higher-quality” players, too).
Although some rival operators have become more promotionally aggressive of late, this is evidently not the case with Boyd. The company has not only fine-tuned its marketing to draw high-value players and ‘churn-out’ low rollers, it “remains diligent in balancing the level of its promotional spend to attract the right level of profitable foot traffic,” appraised Jonas. Boyd may increase its marketing outlays in the future, provided that they do not eat into cash flow.
While Sam’s Town Shreveport continues to stagger under the city’s smoking ban, Jonas said the impact on his investment model was not even incremental. This is not the only front on which Boyd faces challenges. Mulcahy volunteered that tribal Crossroads Casino in Kansas was putting pressure on Boyd’s Kansas Star, and that Hard Rock Northern Indiana and “new supply” in Illinois (presumably slot routes) were impacting Blue Chip in Indiana.
On the other hand, he “expressed comfort” with Boyd’s $100 million-per-quarter share-repurchase initiative. So far, Boyd has bought up 6.4 million shares at a cost of $381 million, with $481 million in dry powder remaining. The labor issue is also looking more reassuring “with wage pressure past its peak.” The most difficult positions for which to find employees are at the lower end of the wage scale-housekeeping, security, food and beverage-“and [management] has found incremental increases to wages haven’t moved the needle on application flow.”
That leaves the question of next year’s Culinary Union contract renegotiation in Las Vegas, with the current pact expiring in May. Mulcahy was confident, describing Boyd’s union workforce as limited (primarily based in Downtown) and citing a “strong relationship” with the Culinary.