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Boyd Gaming Corp. Options – Worth a Gamble?

April 10, 2008 | About:
Boyd Gaming Corp. – Worth a Gamble?

Boyd Gaming [NYSE:BYD] current price: $19.35

52-week range: $18.27 (Mar. 17, 2008) - $54.22 (Jul. 16, 2007)

Yield = 3.10%

Boyd Gaming owns and operates 17 casino / hotel properties in Nevada, New Jersey, Mississippi, Illinois and Florida. They are 50% owners of the Borgata in Atlantic City with MGM Mirage. Boyd is now developing the $4.8 billion Echelon Place – a world-class destination resort on the Las Vegas Strip for an expected opening in 2010. They also own two travel agencies specializing in trips between Hawaii and Las Vegas to bring Islanders to their Nevada properties.

Earnings per share peaked at $2.26 in 2005 before dipping to $1.80 in 2007 and $1.77 in the year just ended. Because of the EPS slide Boyd shares have dropped from a 2005 high of $59.25 to today’s $19.35 quote.

Competition from newly opened slot parlors in Pennsylvania has hurt the New Jersey unit and 2008 earnings are now expected to come in between $1.48 - $1.51/share. That makes BYD’s current forward multiple just over 13x what may turn out to be trough earnings. That is the lowest P/E level for these shares since 2001 – 2002.

Because fundamentals are likely to dip this year there is not a rush to get in to the shares. A more interesting play for me it to write [sell] Leap puts on Boyd out to 2010 at the $15 & $20 strike prices.

Here are the current bid – ask numbers for these options:

………………………………..............Bid / Ask …….Breakeven At Bid

January 2010 $15 Puts: ……...$3.60 / $3.70 ………… $11.40

January 2010 $20 Puts: ……...$5.20 / $6.50 ………… $14.80

This leaves a nice margin of safety from today’s price and would provide a worst-case buy at prices lower than the lows on Boyd shares since 2003 when EPS were only $0.62 versus the projected $1.48 or better this year.

When these shares were ‘in favor’ they traded as high as $42.70 - $59.25 at their peaks in 2004 – 2005 – 2006 – and 2007. The absolute low price in the three years 2005 – 2007 was $33.10 /share.

It’s likely you can get better than the $5.20 bid on the more aggressive $20 puts. I’d guess $5.50 or better from experience if the shares haven’t moved up from when I’m writing.

Analyst Lawrence Klatzkin of Jeffries & Co. sees $1.51 for 2008 and $1.61 for 2009. He is optimistic that expansion in Atlantic City and improvement in the 'locals' market in Vegas will serve Boyd well longer-term. He remarked that the 41% sell-off since December made the shares a 'buy' and his new price target is now $46.

Disclosure: Author is short puts on Boyd Gaming.

About the author:

Dr. Paul Price
http://www.RealMoneyPro.com
http://www.MarketShadows.com
http://www.TalkMarkets.com

Visit Dr. Paul Price's Website


Rating: 3.0/5 (14 votes)

Comments

kfh227
Kfh227 premium member - 6 years ago
I'm always weary of resort destinations. I have to admit though, this is not a bad idea. it's outside my circle of competence though.

Maybe the dip is due to the shortsighted nature of Mr Market. The "bad economy" that hte news is blasting us with might be creating opportunity here.

Not for me, but people that are interested in resorts and casinos might want to look at stockdiox idea.
commodity
Commodity - 6 years ago
Lawrence must be very rich if he can predict

the future earnings of stocks.

I will stick with WEB.
gregharris73
Gregharris73 - 6 years ago


Can you explain to me what's happening with their capex and PPE? It appears to me, that they've spent over $1.5 Billion in capex over the last few years, w/ no subsequent build of total assets. I haven't even looked into the details, but I wonder where the money is going? Building new PPE that isn't yet on the balance sheet? It appears they sold something, but that came out of Assets held for sale as far as I can tell (just browsing WSJ, not yet in any real SEC doc). I may try and figure out for myself if I get some time, but if someone else beats me to it, please post.
Dr. Paul Price
Dr. Paul Price premium member - 5 years ago
Boyd Gaming (BYD):

Q1 EPS of $0.34 beats consensus of $0.32.

Revenue of $471M vs. consensus of $484M.
Dr. Paul Price
Dr. Paul Price premium member - 5 years ago
Guru Robert Olstein:

Bought an additional 1,169,800 shares of Boyd Gaming in the March quarter increasing his stake by 53.58%.

His average cost was $23.50 /share.
Dr. Paul Price
Dr. Paul Price premium member - 5 years ago
Guru Ron Baron added 32.56% to his Boyd Gaming [BYD] position in the March quarter.

As of March 31, 2008 he held 6,488,250 shares with the new shares coming at an average cost of $23.50.


********************************************************************************

Boyd's CEO bought 15,000 shares @ $18.93 on March 11th.

Boyd's VP/Director bought 5,000 shares @ $19.46 on March 13th.
fk
Fk - 5 years ago
from the gurufocus page, I see the

ceo on 3/11/08 bought about 300k$ of his own cooking. Couple of other insiders bought recently as well. Ron Baron seems to like hotels, resorts, casinos. Baron said he made over 1B$ from investing on Steve Wynn over the past twenty years. What's Robert Olstein's area of investing expertise? Olstein has about 2% of total assets in BYD right now.

Dr. Paul Price
Dr. Paul Price premium member - 5 years ago
Guru Bruce Sherman added 13.27% to his Boyd Gaming holdings during the March quarter.

His average price was $23.50 /share.

As of March 31, 2008 he held 7,771,119 shares.
Dr. Paul Price
Dr. Paul Price premium member - 5 years ago
Guru Michael Price took a new position in Boyd Gaming in the March quarter.

He bought 100,000 shares at an average price of $23.50/share.

Dr. Paul Price
Dr. Paul Price premium member - 5 years ago
Today's WSJ notes that Boyd Gaming options traded heavily yesterday as rumors of a buyout were swirling.

Six times as many calls as puts traded with the June $17.50 calls extremely active.

Rumors that Carl Icahn could take a stake abounded.

BYD shares closed up 7.2% at $16.43/share.

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