Boyd Gaming Buying Back $300M in Shares, Analyst Says Stock Still Undervalued

Boyd Gaming s (NYSE:BYD) third-quarter earnings report was solid, and the company is rewarding investors with a $300 million share repurchase program.

After the close of US markets Tuesday, the regional casino operator said it earned $1.30 a share on revenue of $843.06 million in the September quarter. Analysts expected earnings of $1.26 on sales of $839.74 million. On the basis of generally accepted accounting principles (GAAP), the Orleans owner earned $1.21 a share, below the $1.24 a share Wall Street expected.

The GAAP miss is perhaps one reason Boyd shares are only modestly higher today. in the gaming space, surging more than 55 percent.

Las Vegas-based Boyd runs 28 gaming venues across 10 states, including 11 in its home city. The operator reported strength across all segments in the July through September period, while noting earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR) jumped 42.6 percent to $340.7 million from $238.8 million a year earlier.

Like so many of its peers, to conserve cash during the early stages of the coronavirus pandemic. Gaming companies are still treading lightly when it comes to shareholder rewards, making Boyd s buyback announcement all the more important.

From here we would expect management to distribute excess cash flow back to shareholders through a combination of buybacks, which seem to be preferred right now, and dividends,” said Stifel analyst Steven Wieczynski in a note to clients.

He rates the Aliante operator a “buy,” with a $90 price target, up from $88. That implies upside of about 35 percent from the Oct. 26 close.

The near- to medium-term outlook for Boyd stock is further supported by compelling trends to start the current quarter. There s also speculation that Nevada could finally lift its mask mandate at some point in November.

“Management’s commentary leads us to believe 4Q21 is already off to an encouraging start, with little change to their customer spend/visitation patterns,” adds Wieczynski. “We believe a lot of the cost saves that have been achieved during COVID-19 should prove permanent, even as certain margin dilutive revenues come back online.”

Following massive run-ups in many gaming equities from the 2020 lows, finding bargains in the group is difficult, . Boyd appears to be one of the few that s credibly undervalued, even after nearly doubling over the past 12 months.

“With BYD shares showing a ~10 percent free cash flow (FCF) yield at this point, we believe it’s only a matter of time before investors catch on and understand shares remain undervalued,” notes Wieczynski. “Core trends remain encouraging across the portfolio, and it seems like their customer base continues to visit and spend at a healthy pace.”

As the analyst notes, catalysts for Boyd shares include management s commitment to operating efficiencies, ownership of the bulk of the real estate on which its casinos resides, and its five percent stake in FanDuel the latter two of which might not be adequately reflected in the share price.