Analysts tout investment prospects for Boyd Gaming

Boyd Gaming Corp. has caught the eye of the investment community, primarily due to a reinvigorated Las Vegas locals market.

Improved Southern Nevada economic fundamentals, such as lower unemployment rates, higher wages and improved housing affordability, have boosted Clark County gaming area outside the Strip.

Las Vegas-based Boyd, which owns 13 regional casinos in seven states, including the flagship Borgata in Atlantic City, weathered Southern Nevada's downturn through its Southern and Midwest resorts.

"We continue to see the regional trends as stable," Deutsche Bank gaming analyst Carlo Santarelli said last week.

Boyd's locals business — three Coast casinos resorts, Sam's Town, two small Henderson casinos and three downtown properties — were "a potential source of meaningful and accelerated growth."

Susquehanna Financial Group gaming analyst Rachael Rothman, initiating her firm's coverage of Boyd, said the improved visitation numbers along the Strip — up 17 percent since 2009 — "creates a tailwind" that helps funnel business toward Boyd's resorts west of the boulevard, including the Gold Coast on Flamingo Road and The Orleans on Tropicana Boulevard.

"Additionally, improving Las Vegas trends generate higher employment levels, and those employees gamble at Boyd's local casinos," Rothman said.

Santarelli said shares of Boyd, which closed at $18.14 Tuesday on the New York Stock Exchange, should be closer to $24 per share. Rothman put a $22 per share figure on the company.

"Performance has been robust and consistent across geographies, with increased spend per trip, and increasing visitation growth in both the upper and mid-tier segments," Rothman said.

The rosy outlook wasn't always the case.

When Boyd halted the $4.8 billion Echelon development on the Strip in August 2008, management was given rave reviews for taking a bold decision that may have saved the entire business.

The company's stock price did sink into single digits, but Boyd's prospects rebounded with Borgata rising above competition in the saturated East Coast gaming market. Meanwhile, Boyd expanded through acquisition, paying $278 million for the IP Biloxi (Mississippi) in 2011 and $1.45 billion a year later for regional casino rival Peninsula Gaming's six casinos in Iowa, Kansas and Louisiana.

Now, the company has a stronger story to tell.

Boyd Gaming has experienced five straight quarters of revenue increases and cash flow growth. The company's total debt was $3.34 billion at the end of September, low by gaming industry standards.

The figures coincide with positive gaming revenue numbers through November coming from Clark County's markets where Boyd operates casinos. According to the Gaming Control Board, the balance of Clark County area is up 2.7 percent, the Boulder Strip is up 3.3 percent and downtown is up 6.4 percent.

Santarelli said slot machine play represents 85 percent of the locals market gaming revenue. To date, slot machine wagering is up 2 percent and table game play was up 3.4 percent.

"More telling, in our view, is that slot handle was up in nine of the 11 months reported to date, showing a consistency that prior periods lacked," Santarelli said. "From a volume perspective, stability and accelerating growth are evident."

Santarelli said the locals economy showed "sustainable" improvements over the last several years, but the 2013 payroll tax "erased" two years of growth figures.

"With gaming volumes steady and improving in conjunction with the key macro elements of the locals market, we think the pillars are in place for an extended and accelerating periods of locals out-performance for Boyd with meaningful room to expand towards prior peaks," Santarelli said.

Boyd Gaming began a $45 million capital improvement program last year to increase the nongaming amenities offered at its Las Vegas-area properties, changing out restaurants and bars and upgrading hotel rooms. The idea is to increase the nongaming spending at the properties, including The Orleans and Suncoast, which have seen double-digit gains in hotel room rates.

"These types of reinvestment projects not only drive higher rates for existing players, but broaden the appeal of the property, attracting new players and raising the company's market share," Rothman said.

Boyd is also mirroring this move outside Las Vegas. At its Delta Down racetrack casino in Louisiana, the company is spending $45 million to add a 167-room hotel tower, redesign the existing 200 hotel rooms and expand the special event center.

Rothman expects Boyd to announce additional investments when the company releases its fourth quarter numbers next month.

Howard Stutz's Inside Gaming column appears Wednesdays and Sundays. He can be reached at hstutz@reviewjournal.com or 702-477-3871. Find on Twitter: @howardstutz