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Boyd Gaming's YTD Shares Surge 36.5%: More Room for Growth?

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Boyd Gaming Corporation (BYD - Free Report) continues to expand its portfolio by strengthening current operations and growing through capital investment as well as other measures. However, intense competition from various casinos and hotels, high debt levels, and increased expenses are potential headwinds.

In the first quarter of 2019, the company witnessed robust top and bottom-line growth. Earnings grew 10.3% year over year on higher margins while revenues improved 36.5% on a year-over-year basis.  Meanwhile, the company’s earnings beat/met the Zacks Consensus Estimate for five consecutive quarters.

Backed by such robust performance, shares of Boyd Gaming have gained 25.3% so far this year, outperforming the industry’s rally of 21.3%.


 

Expansion — Key Growth Driver

Boyd Gaming extensively depends on acquisitions as a strategy to expand its brand presence and strengthen top-line growth. Earlier, it entered an agreement with Penn National Gaming (PENN - Free Report) to acquire the operations of Ameristar St. Charles; Ameristar Kansas City; Belterra Casino Resort in Florence, IN; and Belterra Park in Cincinnati, OH. The company completed the acquisition of Valley Forge Casino Resort in King of Prussia, PA, and four Pinnacle properties.

Meanwhile, Boyd Gaming has also been undertaking efforts to expand online betting offerings. One of the notable initiatives by the company has been regarding the legalization of sports gambling. In July 2018, it entered a partnership with MGM Resorts International (MGM - Free Report) , under which the companies have the opportunity to offer online and mobile gaming platforms, including sports betting, casino gaming and poker.

In 2018, Boyd Gaming also opened sports books at its two Mississippi properties, IP Casino Resort Spa (“IP”) in Biloxi, and Sam’s Town Hotel & Gambling Hall in Tunica. It also entered a partnership with FanDuel Group to pursue sports betting and online gaming opportunities across the United States.

Backed by such initiatives, the Zacks Consensus Estimate pegs the company’s 2019 revenues at $3.3 billion, reflecting a 26.8% increase from the year-ago level.

EBITDAR & Margin Growth to Boost Earnings

Boyd Gaming has been generating EBITDAR growth for quite some time. In first-quarter 2019, the company reported EBITDAR growth for the 16th quarter out of the last 17 quarters. Adjusted EBITDAR was $223 million in the first quarter of 2019, up 39% year over year. Its Las Vegas business achieved 16th successive quarter of EBITDAR growth as well. For 2019, Boyd Gaming expects EBITDAR of $885-$910 million. The company has also been reporting robust operating margin expansion for the past several quarters.

Subsequently, the Zacks Consensus Estimate for 2019 earnings is pegged at $1.80, suggesting 35.3% year-over-year growth.

Concerns

Boyd Gaming’s heavy reliance on debt financing is concerning. As of Mar 31, 2019, the company had total debt of $4 billion. It might fail to finance upcoming projects due to higher debt burden. Moreover, any downturn in the macroeconomic and credit market conditions might make it difficult for the company to pay or refinance its debt, moving ahead.

Meanwhile, despite having several margin improvement initiatives in place, Boyd Gaming faces higher expenses across gaming, food and beverage, room, and other offerings. The company also witnessed high SG&A costs in the first quarter of 2019. Total operating costs and expenses in the first quarter of 2019 increased 38.8% year over year.

Boyd Gaming, which shares the same space with Wynn Resorts (WYNN - Free Report) , presently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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