Citing “unappreciated growth,” Credit Suisse analyst Ben Chaiken initiated coverage of Boyd Gaming with an Outperform rating. He set a year-end price target of $82 a share on stock that was trading at $58.34 at the time.
In addition to Boyd’s portfolio of regional and Las Vegas locals casinos, Chaiken pointed to the company’s online activities as a “growing opportunity.” He went on to enumerate four cash-flow drivers that he believed “are underappreciated and not reflected in Street estimates.”
The first of the four was Boyd’s capex investment in the Fremont Hotel and its wider growth in the downtown Las Vegas market.
“We think the downtown market could inflect higher as corporate demand on the Strip returns, driving spillover into adjacent markets,” wrote Chaiken, adding that late-2022 returns “suggest” an upward inflection in downtown Vegas, accompanied by potential 2023 upsides. Although Wall Street is assuming a five percent declivity in 2023 revenue, Chaiken thinks the Fremont investment will drive healthy returns on invested capital (ROI).
Chaiken also liked the $100 million reinvestment in land-based Treasure Chest Casino in Kenner, Louisiana. “We think new amenities, better access, and a more cohesive casino floor could drive a 20%-30% ROI,” which would be well above industry average.
Third, the closing of the Pala Interactive acquisition is anticipated to provide a slight tailwind to Boyd this year, giving it a wholly owned platform from which to continue launching its Stardust igaming brand and FanDuel-partnered sports-betting applications. This will also remove the branding fee Boyd currently pays FanDuel.
Lastly, Chaiken expects good things out of Boyd’s management contract with tribal Sky River Casino near Sacramento. Sky River management reported a strong opening and Chaiken projects $36 million in fees for Boyd this year. “Further, [Boyd] has what we believe is a call option on its 5% stake in FanDuel, which was recently valued at $22bn (or $1.1bn for BYD’s position), not reflected in the stock or our target price.”
Pro-forma risks mentioned by Chaiken include a potential recession and a concomitant pullback in consumer spending. These could be magnified by expansion of traditional and/or online gaming in markets where Boyd is already entrenched.