Boyd beats The Street but charts cautious course

“Massive beat” and “exceptional” results were some of the terms being bandied about after yesterday’s Boyd Gaming 2Q21 earnings call. Wall Street expected $803 million in revenue and Boyd delivered $896.5 million, while profit margins at its Las Vegas locals casinos rose all but exponentially over 2019. “We believe this acceleration is likely to surprise investors,” wrote Deutsche Bank analyst Carlo Santarelli, adding that Boyd executives thought their performance targets had been too conservative. They also gave a hint about 3Q21, saying that June’s strength was (no surprise) carrying over into July. “While investors are sure to question the sustainability of margins going forward, as any right minded individual would, especially after this quarters [sic] performance, we continue to believe there is support in the thesis for the likes of” Station Casinos, Golden Entertainment and Boyd. Leadership, JP Morgan analyst Joseph Greff wrote, “notes that the 2Q21 undoubtedly benefitted from government stimulus and unemployment insurance padding consumer spend, but also strong demand from its core customer.

“While labor shortage is an issue, we don’t think elevated labor costs going forward will pierce margin gains in a significant way which poses risks to our new forecasts,” Greff continued. He liked a business plan “predominantly focused on a drive-to, leisure gaming customer. We think our estimates are reasonably based, with a steady return of its older demographic.”

The Stardust-branded Internet casino has gone live in New Jersey and Pennsylvania, and so far both revenues and player volumes are running ahead of expectations. “Management had previously indicated the roll-out of the new product would not require any real investment or expense,” Santarelli added, noting that Boyd has (sensibly) taken a percentage fee from sports-betting skins in lieu of outright revenue, thereby shielding it from the startup losses being incurred by operators in that sphere. Even weak spot Downtown was looking better, bringing in $15.5 million cash flow where The Street had expected $3 million, putting it just 3% off the 2019 pace. Still no word on when Main Street Station and Eastside Cannery will be coming back (though Main Street will be first when they do) but with a second wave of Covid-19 sweeping Clark County, doing so would be both premature and imprudent.

Treasure Chest‘s dry-land replacement in Louisiana is in the ink-and-pencil planning stage, provided the cost can be justified. It would run $85 million to $100 million and take as much as two years to finish, probably opening in very late 2023 or early 2024. Unrated play is still a huge part (45%) of volume company wide but new B Connected signups tend to be higher-value players, while Baby Boomers have not changed their playing habits as the dreaded Delta variant has spread. Finally, management said it would be “prudent” with cash outlays (see Treasure Chest), not a bad strategy even in such good—albeit highly unpredictable—times. Segmentally, Boyd’s net revenue was $236 million from Las Vegas locals (7% higher than two years ago), $39 million from Downtown (-40%), and $619 million from the Midwest and South segments (10% above 2019). Greff was inspired to ratchet up his cash-flow estimates for the remainder of the year and raise his price target on BYD from $81/share to $85. (Santarelli stood pat at $78.)

“Though Q2 was aided by stimulus/vaccine, strong trends have continued into July as it appears a streamlined operating model and higher margins/play levels could be here to stay in the ‘New Normal’. While Q2 could represent the ‘peak’, the beat was so sizable that it’s hard for us to be negative. Even with Nevada reinstituting its indoor mask mandate post-earnings call, Street estimates likely move higher,” wrote Barry Jonas of Truist Securities. He noted that the cash flow was an all-time company record and “massively ahead” of where Wall Street expected Boyd to land. Potential weak spots were The Orleans (“destination-heavy”) and the Hawaii trade in Downtown, still pandemic-constrained.

At the risk of being a Debbie Downer, we have to wonder if the scale of the Sin City recovery (as symbolized by Boyd) was a case of “too much, too soon.” In their haste to revisit Vegas, with stimulus money burning a hole in their pockets, customers have helped create a Covid cluster so big that casino patrons will, as of the week, start having to mask-up again, with the Nevada Gaming Control Board announcing it intends to enforce the new edict. It could well put a crimp in 3Q21 but we know that another comeback is possible, indeed quite likely. So there’s cause for optimism despite the current setback.