Boyd Gaming (NYSE:BYD) is trading near a 52-week low following a harsh post-earnings sell-off. Late last month, the casino company announced a sharp decline in first-quarter profits, causing shareholders to rush to the exits. Since the high-volume 15% plunge, however, the stock has stabilized. Boyd Gaming’s long-term track record of delivering shareholder value and its attractive valuation suggest the risk-reward is favorable here. I believe this dip is indeed worth the gamble.
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Based in Las Vegas, Boyd Gaming owns and operates 29 gaming properties across 11 U.S. states. The mid-cap company also owns a 5% stake in sports-betting operator FanDuel Group.
Boyd Gaming stock is about 20% below its 2024 peak. Management reported that 2024 first-quarter EPS fell 12% year-over-year to $1.51, missing the consensus forecast for the third time in the last four quarters. After six straight quarters of top-line growth, first quarter revenue of $961 million was down slightly versus the prior year period.
Despite the miss, I’m not as concerned as the market when it comes to Boyd Gaming for the following reasons:
1) The company faced a tough year-over-year comparison. A record performance in the Las Vegas Locals business drove 12% revenue growth in the first quarter of 2023.
2) Boyd Gaming has been a casino industry leader for nearly 50 years, withstanding plenty of cyclical downturns along the way. Over the last 10 years, its stock has produced an 18% annualized return compared to approximately 12% for the broader U.S. equity market.
3) A low P/E ratio is likely to attract value investors over time.
Let’s learn more about why the market dumped Boyd Gaming stock and what could drive a sharp rebound.
What Went Wrong for Boyd Gaming in Q1?
Boyd Gaming’s revenue declined slightly in both its Las Vegas Locals and Downtown Las Vegas segments. This reflected both lower foot traffic and increased competition. Management also blamed severe winter weather in the Midwest and South.
As for the slower customer traffic, we can chalk this up to the macroeconomic pressures that have impacted tourists’ discretionary spending. As for competition, new casino properties are popping up on and around the Vegas strip, including the high-tech Sphere Las Vegas venue. This will continue to present a challenge to Boyd Gaming.
After growing revenue by 5% to a record $3.55 billion last year, many investors found the slow 2024 start to be a buzzkill. It didn’t help that profitability also weakened in the first quarter. Boyd Gaming’s operating margin decreased more than 300 basis points to 15.3%, as food, beverage, and room expenses ticked higher. Going forward, margins will be a key metric to watch, especially as the company undertakes various property renovation projects.
Online Gaming Is a Pocket of Strength
The ‘ace in the hole’ for Boyd Gaming is its online casino business. Online revenue grew 19% in the first quarter to $146 million thanks to FanDuel, the country’s top online sports betting (OSB) platform.
As a traditional brick-and-mortar casino operator, Boyd Gaming is exclusively dependent on FanDuel for online growth but could diversify this exposure through its own digital launches or additional OSB investments. For now though, FanDuel is proving to be a valuable financial results booster when Las Vegas foot traffic dips.
Buybacks and Low Valuation
Boyd Gaming stock could also find support from buybacks. Following the board’s approval of a $500 million repurchase program increase, the company has plenty of firepower when it comes to propping up its depressed stock.
After last week’s sell-off, Boyd Gaming stock is the cheapest it has been all year from a P/E perspective. After trading around 12x trailing earnings in April, the stock’s trailing P/E ratio has dipped below 10x.
Boyd Gaming shares are also inexpensive relative to mid-cap casino and gaming peers. For example, Red Rock Resorts (NASDAQ:RRR) is trading at 17x trailing earnings.
What Is the Consensus Price Target for BYD Stock?
Boyd Gaming’s low valuation is also evident in Wall Street’s price targets. The consensus price target for BYD stock is $72.50, which implies 31.9% upside potential. Even the more skeptical sell-side analysts see Boyd Gaming having limited downside and plenty of upside from here. Last month, JPMorgan (NYSE:JPM) analyst Joseph Greff downgraded BYD to Hold but set a $67 price target.
Of the 11 analysts who have refreshed their Boyd Gaming opinions over the last three months, the lowest price target is $65.00. With the stock now at $54.98, there appears to be a lot of room to run.
The Bottom Line on BYD Stock
Boyd Gaming stock was crushed by weaker-than-expected first-quarter results caused by slower Vegas traffic, more competition, and Mother Nature. Coming off a record 2023, though, the slow start to the new year is likely to be a blip on the radar for a casino operator with a long history of growth and market outperformance.
