Posted on: April 26, 2024, 03:32h.
Last updated on: April 26, 2024, 03:32h.
Increased competition in the Las Vegas locals market, namely in the form of the Durango Casino & Resort, was among the reasons Boyd Gaming (NYSE: BYD) missed first-quarter earnings estimates, trigging a massive selloff in the stock today.
The regional casino operator said it earned $1.51 a share in the first three months of the year on the basis of non-generally accepted accounting principles (non-GAAP). Analysts expected earnings per share of $1.59. As a result, shares of Boyd tumbled with the stock settling lower by 15.44% on volume that was more than eight times the daily average.
Boyd cited bad weather as a drag on its gaming venues in the Midwest and the South and “increased competitive pressures in the Las Vegas Locals market” as reasons for the “challenging start to the year.” Red Rock Resorts’ (NASDAQ: RRR) Durango Casino & Resort in Southwest Las Vegas, which opened last December, is the primary source of new competition to Boyd’s Las Vegas properties, but promotional activity by other competitors is affecting Boyd.
The good news is that our major competitor, even with the opening of a new property really has not elevated the level of promotions,” said Boyd CEO Keith Smith in response to a question from Stifel analyst Steven Wieczynski on the company’s conference call. “It is some of the other smaller operators, independent operators kind of around town, there are some properties around the Orleans and the Gold Coast that have gotten more promotional late in 2023 and into 2024 that I think are impacting the market.”
Smith didn’t identify specific smaller operators that upping promotional activity. Wieczynski reiterated a “hold” rating on Boyd stock while paring his price target to $65 from $71.
Insider Selling May Have Tipped Weakness in Boyd Stock
In February and March, Boyd insiders, including Smith and the Boyd family, dumped $53.4 million worth of the stock. With the benefit of hindsight, that may have been a tell the operator was expecting tepid first-quarter results.
On the conference call, Smith acknowledged to JPMorgan analyst Joseph Greff that the competitive headwinds created by Durango were more pronounced in March than in January and February. To start the current quarter, Boyd isn’t seeing a reversal of that weakness in the Las Vegas locals segment, but it’s not experiencing an acceleration of it, either, Smith told the analyst.
“But there are other competitors in the marketplace other than ourselves and our largest competitor here that are reacting differently to that new competition than we are,” said CFO Josh Hirsberg. “And what we’re trying to say is those are the folks that are having an impact on our business, and Durango is maybe a lesser of an impact, just so you can kind of understand the dynamics of the marketplace.”
Though not mentioned explicitly by Boyd, Durango’s fast start could be the impetus for plans announced last month for a broad renovation of Suncoast Hotel & Casino in suburban Las Vegas — one of the Boyd venues that’s closet to Durango.
Red Rock Punished, Too
While Boyd admitted Durango is adding some competitive pressure in the Las Vegas locals market, that commentary wasn’t beneficial to shares of Red Rock. In fact, that stock tumbled 8.67% today on volume that was more than double the daily average perhaps owing to Boyd’s comments on promotional spending by smaller independent players in Las Vegas.
Specific to Boyd, Stifel’s Wieczynski believes the operator’s sturdy balance sheet and impressive free cash flow (FCG)-generating capabilities could make it one of the safer plays among regional casino stocks.
“With BYD shares showing an ~9% FCF yield, we believe it’s a matter of time before investors catch on and understand shares remain undervalued when compared to peers,” concluded the analyst.
