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.
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