Options Trade – Boyd Gaming Corporation (NYSE:BYD) Calls
Sunday, March 02, 2014

**OPTIONS TRADE: Buy the BYD Jun 2014 10.000 call (BYD140621C00010000) at or under $2.35, good for the day. Place a protective stop limit at $0.95 and a pre-determined sell at $4.00.

by Ian Harvey

March 02, 2014

Introduction

Following the market close on March 5, gaming company Boyd Gaming Corporation (NYSE: BYD) reports its fourth quarter results. The stock has lost 1.0% year to date, and the consensus estimate is for the company to report a fourth quarter loss of $0.23 per share.

Like most stocks, BYD ran into some stiff selling pressure in January, but has managed to trend higher through February. However, it has not quite made back all of the losses it took early in the year. The company does not have an impressive earnings track record, having missed its consensus estimate for two quarters in a row. The consensus estimate for the current quarter calls for a loss of $0.23 per share, but the rumored number is for a loss of $0.25, so that is the number analysts will really be looking to see.

Company Details

Boyd Gaming Corporation (Boyd Gaming) incorporated in June 1988, is a multi-jurisdictional gaming company. The Company is an operator of 16 wholly owned gaming entertainment properties and one controlling interest in a limited liability company. It has gaming operations in Nevada, Illinois, Louisiana, Mississippi, Indiana and New Jersey. It operates in four segments: Las Vegas Locals, Downtown Las Vegas, Midwest and South, and Atlantic City.

The Company owns and operates a travel agency in Hawaii, and a captive insurance company, also in Hawaii, that underwrites travel-related insurance.

It owns approximately 87 acres of land on the Las Vegas Strip, where its Echelon development project (Echelon) is located.

On October 4, 2011, the Company acquired IP Casino Resort Spa (IP) in Biloxi, Mississippi. In March 2013, the Company completed the sale of the Echelon site. In March 2013, the Company completed the sale of the Echelon site.

Key Statistics for BYD

Current P/E Ratio (ttm) -
Estimated P/E(12/2013) -
Relative P/E vs. SPX -
Earnings Per Share (USD) (ttm) -2.5420
Est. EPS (USD) (12/2013) -0.3460
Est. PEG Ratio -
Market Cap (M USD) 1,252.82
Shares Outstanding (M) 107.82
30 Day Average Volume 3,162,658
Price/Book (mrq) 2.4574
Price/Sale (ttm) 0.3742
Dividend Indicated Gross Yield -%
Cash Dividend (USD) -
Dividend Ex-Date 08/01/2008
5 Year Dividend Growth -
Next Earnings Announcement 03/05/2014

Technical Analysis

BYD was recently trading at $11.15, down $3.60 from its 12-month high and $4.78 above its 12-month low. Technical indicators for BYD are neutral and the stock is in a weak upward trend. The stock has support above $10.10 and resistance below $11.50.

Earnings

Boyd Gaming Corp. last posted its quarterly earnings results on Thursday, October 31st. The company reported $0.08 earnings per share for the quarter, beating the analysts’ consensus estimate of $0.01 by $0.07. The company had revenue of $738.60 million for the quarter, compared to the consensus estimate of $758.10 million.

During the same quarter in the previous year, the company posted ($0.11) earnings per share. The company’s revenue for the quarter was up 20.6% on a year-over-year basis.

On average, analysts predict that Boyd Gaming Corp. will post $-0.24 earnings per share for the current fiscal year.

TheStreet Ratings Team Provided These Highlights

• The revenue growth came in higher than the industry average of 3.4%. Since the same quarter one year prior, revenues rose by 20.6%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.

• Compared to its closing price of one year ago, BYD's share price has jumped by 43.32%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.

• 38.89% is the gross profit margin for Boyd Gaming Corp which we consider to be strong. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -5.04% is in-line with the industry average.

• The debt-to-equity ratio is very high at 8.52 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. To add to this, BYD has a quick ratio of 0.53, this demonstrates the lack of ability of the company to cover short-term liquidity needs.

• Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Hotels, Restaurants & Leisure industry and the overall market, Boyd Gaming Corp's return on equity significantly trails that of both the industry average and the S&P 500.

Analysts Opinions

Boyd Gaming Corp. was upgraded by FBR Capital Markets from a “market perform” rating to an “outperform” rating in a research note issued on Thursday, 6th February, 2014.

The firm raised its price target for the company to $11.35 from $10.40. The upgrade is due to the company's efforts to cut costs and possible better results in Las Vegas.

Analyst Jake Fuller wrote, "Key planks to the bull case include: (1) debt reduction has driven a notable improvement in free cash flow through interest savings; (2) easier regional comps and signs of life in Vegas point to EBITDA growth in 2014; (3) bad luck and weather hit Borgata in 4Q, but property tax savings, reduced market capacity, and online gaming should yield a better 2014; and (4) the risk-reward is skewing to the positive on the recent sell-off."

Also, the company has been the subject of a number of other research reports:-

• Analysts at Deutsche Bank cut their price target on shares of Boyd Gaming Corp. from $12.00 to $10.00 in a research note to investors on Friday, January 24th. They now have a “hold” rating on the stock.

• Separately, analysts at FBR Capital Markets initiated coverage on shares of Boyd Gaming Corp. in a research note to investors on Wednesday, November 13th. They set a market perform rating and a $10.40 price target on the stock.

• Also, analysts at Janney Montgomery Scott cut their price target on shares of Boyd Gaming Corp. from $14.00 to $9.00 in a research note to investors on Monday, November 4th. They now have a neutral rating on the stock.

• Finally, analysts at Imperial Capital cut their price target on shares of Boyd Gaming Corp. from $13.00 to $12.00 in a research note to investors on Monday, November 4th. They now have an in-line rating on the stock.

One equities research analyst has rated the stock with a sell rating, eleven have given a hold rating and two have given a buy rating to the company’s stock. Boyd Gaming Corp. presently has a consensus rating of Hold and an average price target of $11.59.

Conclusion

Boyd should benefit from improved conditions in Las Vegas, as well as its strong presence in New Jersey's online gaming business (thanks to its partial ownership of the Borgata casino), which has been growing at a fast pace. New Jersey's internet gambling revenue was just $9.46 million in January, but that does mark a 28% increase from December. Currently, residents in the three states that offer internet poker (Nevada, Delaware and New Jersey) are permitted to just play against other residents in their states, but that is changing too, and opens a lot of opportunity for companies like Boyd Gaming which have a stake in the growth of internet poker in the U.S. Nevada and Delaware have recently formed a pact to allow players from those states to play against each other, and over time other states are likely to come on board in search of much-needed gaming revenues.

Analysts are not expecting a great quarter for BYD, and the results are likely to be weak. However, the negativity is already priced into the stock, so the company really does not have to have a blowout quarter, it just needs to come in in-line or slightly better for the stock to continue trading higher.

Therefore, based on the facts above the following options trade is recommended…..


**OPTIONS TRADE: Buy the BYD Jun 2014 10.000 call (BYD140621C00010000) at or under $2.35, good for the day. Place a protective stop limit at $0.95 and a pre-determined sell at $4.00.



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