Is Boyd Gaming’s Stock Too Much of a Gamble Right Now?

With shares of Boyd Gaming Corporation (NYSE:BYD) trading at around $5.69 is BYD an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

This is an interesting and ironic situation. As Boyd Gaming is making money off gamblers betting against the house, shorts are making money betting against Boyd Gaming. There has to be a movie in there somewhere, or at least a financial documentary. This isn’t your average short position, either. Over 21 percent of the float is short. That’s high … very high.

Longs are hopeful that Boyd Gaming can return to its heyday of the mid-2000s, but that doesn’t seem likely in the near future. Longs shouldn’t panic, though. Most companies in this industry find ways to survive when times are rough.

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There is a lot of news out on Boyd Gaming and the industry recently, and not much of it is positive. News just came out today that New Jersey gambling revenue fell 28 percent in November compared to November 2011, which was mostly due to Hurricane Sandy. Casinos only suffered minor damage, but all casinos were forced to shut down for six days. Even if the casinos were open, it would have been difficult for people to get there considering roads were damaged and buses and trains weren’t running.

Longs who read this will no doubt fire away and point out that Boyd Gaming has casinos around the country. This is indeed true, which is why we should look at the numbers for more of a big-picture analysis.

E = Equity to Debt Ratio Is Weak

The debt-to-equity ratio for Boyd Gaming is high. However, it’s not nearly as high as the debt-to-equity ratio for Caesar’s Entertainment Corporation (CZR). In regards to cash vs. long-term debt, Boyd Gaming leaves a lot to be desired. That said, it’s once again healthier than Caesar’s Entertainment.

Debt-To-Equity

Cash

Long-Term Debt

BOYD

2.95

$156.71 Million

$3.55 Billion

ASCA

N/A

$116.31 Million

$1.92 Billion

CZR

181.00

$1.19 Billion

$21.11 Billion

 

T = Technicals on the Stock Chart Are Poor

Boyd Gaming has underperformed Caesar’s Entertainment as well as Ameristar Casinos (NASDAQ:ASCA) in all timeframes.

1 Month

Year-To-Date

1 Year

3 Year

BOYD

12.13%

-23.79%

-10.61%

-30.16%

ASCA

17.83%

22.41%

17.19%

30.37%

CZR

47.28%

3.42%

N/A

N/A

 

At 5.69, Boyd Gaming is currently trading below all its averages.

50-Day SMA

6.02

100-Day SMA

6.93

200-Day SMA

9.75

 

E = Earnings are Weak, But Revenue Is Good  

Boyd Gaming has shown good revenue growth on an annual basis, but earnings have been wildly inconsistent. To make matter worse, Wall Street is expecting a 125 percent decrease in earnings next year. At least there will be room for an upside surprise.

2007

2008

2009

2010

2011

Revenue ($)in billions

1.997

1.781

1.641

2.141

2.336

Diluted EPS ($)

3.42

-2.54

.05

.12

-.04

 

This is one of those rare situations where Q3 YoY revenue increases while earnings show a steep decline. Net income for Q3 YoY also saw a 608.1% decline.

9/2011

12/2011

3/2012

6/2012

9/2012

Revenue ($)in millions

590.22

606.76

633.08

615.22

613.28

Diluted EPS ($)

.04

-.01

.07

.01

-.18

 

T = Trends Support the Industry

Excluding the upper class, there isn’t as much discretionary income to go around as there was in the past. This has led to a poor performance for most casino resort companies. If we could get away from artificial stimulus and allow the economy to take its natural course, then things would be back to normal at a faster pace. Unfortunately, that’s not the way our country operates, which is why figuring out this industry in regards to where to invest is a big gamble.

Conclusion

Boyd Gaming owns some famous as well as impressive properties. These include Suncoast, Sam’s Town Las Vegas, Fremont, The Orleans and Borgata. There are 22 properties total, which are spread out around the country. The majority of these properties will be around for a very long time. In many cases, the name alone has value.  Revenue growth is also there, which is a good sign. Therefore, the long term prospects are likely good, or at least decent.

Over the next few years, the situation isn’t as appealing. This is a company with high debt, weak operating cash flow and poor earnings growth. The industry is also suffering due to poor overall economic conditions. Based on these conditions, Boyd Gaming is currently a STAY AWAY.

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