Expansion Projects And FanDuel Partnership Will Strengthen Future Market Position

Key Takeaways

• Strategic property investments and partnerships, like FanDuel, boost market presence and could drive revenue in specific segments.
  
• Expansion projects and strong capital allocation enhance customer attraction and shareholder value, influencing future growth.
  
• Competitive pressures and construction setbacks pose risks to Boyd Gaming's revenue growth, while significant capital expenditures and shareholder returns could strain future earnings.

Catalysts

Operates as a multi-jurisdictional gaming company in Nevada, Illinois, Indiana, Iowa, Kansas, Louisiana, Mississippi, Missouri, Ohio, and Pennsylvania.

• Boyd Gaming's recent property investments have driven strong results in specific market segments, such as Downtown Las Vegas and Midwest & South. Anticipated continued growth in these sectors could positively impact future revenue and earnings.
  
• Expansion and enhancement projects, such as Suncoast’s renovation and Ameristar St. Charles meeting space, are expected to attract more customers, potentially increasing future revenue.
  
• Boyd Gaming's partnership with FanDuel strengthens its position in the online segment. The growth in online gaming and Boyd's 5% equity interest in FanDuel could drive both revenue and EBITDAR growth.
  
• The development of Cadence Crossing Casino and the Norfolk, Virginia casino project provides significant growth opportunities, potentially boosting future revenues.
  
• Boyd Gaming’s disciplined capital allocation strategy, which includes maintaining a strong balance sheet and returning capital to shareholders, supports shareholder value and could influence future earnings.

Boyd Gaming Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Boyd Gaming's revenue will grow by 1.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 13.0% today to 14.6% in 3 years time.
• Analysts expect earnings to reach $587.6 million (and earnings per share of $7.75) by about December 2027, up from $500.1 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as $673.9 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.6x on those 2027 earnings, down from 13.1x today. This future PE is lower than the current PE for the US Hospitality industry at 23.6x.
• Analysts expect the number of shares outstanding to decline by 5.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.8%, as per the Simply Wall St company report.

Boyd Gaming Future Earnings Per Share Growth

Risks

• Boyd Gaming's Las Vegas Locals segment faces competitive pressures impacting The Orleans and Gold Coast properties, posing a risk to revenue growth and net margins in this area.
  
• The upcoming extension of the Tropicana I-15 interchange construction into 2025 could hinder accessibility to the Orleans property, potentially impacting visitation and related revenue and earnings.
  
• The company anticipates challenges in comparing EBITDAR for the fourth quarter due to prior favorable expense adjustments that are unlikely to recur, risking impacts on earnings growth in the Midwest and South segments.
  
• There is significant capital expenditure planned for future growth, including $750 million for a new project in Norfolk, Virginia, which, if not adequately managed, could strain cash flow or delay returns, impacting future earnings.
  
• A high level of ongoing capital returns to shareholders, including share repurchases and dividends, could limit funds available for other growth initiatives, potentially affecting future revenue and earnings growth opportunities.

Valuation

• The analysts have a consensus price target of $76.57 for Boyd Gaming based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $85.0, and the most bearish reporting a price target of just $69.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $4.0 billion, earnings will come to $587.6 million, and it would be trading on a PE ratio of 12.6x, assuming you use a discount rate of 8.8%.
• Given the current share price of $73.88, the analyst's price target of $76.57 is 3.5% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.