Boyd Gaming Corporation (BYD - Free Report) extensively focuses on strengthening operations and growing business through capital investment as well as other measures. The company is relying on acquisitions to expand portfolio and fortify its brand.
Boyd Gaming is one of the best performing gambling stocks in the industry and promises solid momentum in the months ahead. Hence, if you still have not taken appreciation of this Zacks Rank #2 (Buy) stock to date; it’s time that you add it to your portfolio.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The company’s consistent top- and bottom-line growth has led its share price to gain 35.3% in a year, against the industry’s collective decline of 9.2%.
Let us delve deeper into reasons that make Boyd Gaming a lucrative pick now.
Strong Top-Line Momentum — Major Growth Driver
Through various acquisitions, Boyd Gaming is continuously aiming at expanding portfolio and boosting top-line growth. Backed by business initiatives, the company’s revenues witnessed growth of 9.1% in 2017. It is likely to continue with a robust performance in 2018 and 2019 as well.
The Zacks Consensus Estimate pegs 2018 and 2019 revenues at $2.4 and $2.5 billion, reflecting respective 2.1% and 1.9% year-over-year growth.
Robust Margin Growth to Favor Earnings
Boyd Gaming has been generating EBITDA growth for quite some time. In second-quarter 2018, the company reported EBITDA growth for the 13th quarter out of the last 15 quarters. Its Las Vegas business achieved the 13th successive quarter of EBITDA growth as well. For 2018, Boyd Gaming raised adjusted EBITDA guidance. It now expects the metric to be $618-$633 million compared with $600-$620 million, guided earlier. It has also been reporting robust operating margin growth for the past several quarters.
We believe that through enhanced margins the company is poised to witness earnings growth. The consensus estimate predicts current-year earnings to increase 26.2% from the prior year.
Valuation Looks Favorable
Since casino stocks are debt-laden, it makes sense to value those based on the EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) ratio. This is because the valuation metric considers not just equity but also the level of debt on a company’s balance sheet. For capital-intensive companies, the EV/EBITDA is a better valuation metric because it is unaffected by changing capital structures and ignores effects of noncash expenses on a company’s value.
Looking at Boyd Gaming’s EV/EBITDA ratio, the company seems undervalued compared with its peers. Its trailing 12-month EV/EBITDA is 12.5, which is below the high of 15.8 scaled over the past year. The industry’s ratio, on the contrary, stands at 21.6.
Moreover, per the VGM Score, which identifies the most attractive value, growth and momentum characteristics, Boyd Gaming has a Score of B, indicating that the stock is most likely to outperform.
Higher Net Margin
Traditionally, gross margin for gambling companies is always comparatively higher as the majority of their expenses come from the cost of operations. However, the sector’s profit margin narrows once these expenses from operations are taken into account. Consequently, net profit margin or net margin is considered the accurate metric for gauging profits of hospitality companies. Boyd Gaming’s trailing 12-month net margin is 7.7%, higher than the industry’s average of 3.6%.
Favorable Industry Scenario
Being one of the largest entertainment markets in the world, casinos seldom fail to build businesses. This is because demand for casino services is relatively inelastic as it targets a fixed range of consumers who will continue to visit casinos, irrespective of market conditions.
Per Research and Markets, the casino gaming market in the United States is expected to witness compound annual growth rate of 4.74% during 2017-2021. Moreover, backed by rise in discretionary spending and lenient government regulations, Boyd Gaming, following the path of most casino giants — including Wynn Resorts (WYNN - Free Report) , Penn National Gaming (PENN - Free Report) and Las Vegas Sands (LVS - Free Report) — is about to sustain and continue with its growth story.
Furthermore, the recent court ruling, which allows sports betting at casinos, is an added advantage for these companies. Per Eilers&Krejcik Gaming 2017 reports, the legal sports betting market is likely to garner $6.03 billion in revenues annually by 2023.
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