BYD Stock Study (7-25-24)

Posted by Mark on September 13, 2024 at 07:01 | Last modified: July 25, 2024 14:18

I recently did a stock study on Boyd Gaming Corp. (BYD) with a closing price of $57.77.

M* writes:

     > Boyd Gaming Corp is a multi-jurisdictional gaming company. The
     > company operates wholly-owned gaming entertainment properties
     > (casino space, slot machines, table games, and hotel rooms) in
     > Nevada, Illinois, Indiana, Iowa, Kansas, Louisiana, Mississippi,
     > Missouri, Ohio, and Pennsylvania. Geographical regions separate
     > its business segments: Las Vegas Locals, Downtown Las Vegas,
     > Midwest and South, and Online. Midwest and South hold the key
     > number of entertainment properties, and it generate the
     > majority of sales for the company.

Over the past 9 years (2014 excluded from analysis due to negative EPS), the medium-size company has grown sales and EPS at annualized rates of 7.7% and 33.6%, respectively (2020 excluded from analysis due to property shut downs per COVID-19 mandates). Lines are mostly up and narrowing except for sales decline in ’16 and EPS declines in ’17 and ’18. 10-year R^2 is 0.81 (with exclusions) although Value Line gives a low Earnings Predictability score of 20 (without exclusions).

Over the past 9 years (sans ’20), PTPM mostly trails peer and industry averages despite increasing from 1.8% (’15) to 20.1% (’23) with a last-5-year mean of 11.9%. ROE also trails peer and industry averages despite increasing from 9.3% (’15) to 33.5% (’23) with a last-5-year mean of 28.8%. Debt-to-Capital is higher than industry averages but lower than peers while falling from 86.6% (’15) to 68.1% (’23) with a last-5-year mean of 72.5%.

Current (Quick) Ratio is 0.80 (0.67) and Interest Coverage is 5.0 per M* who also assigns a Narrow [quantitative] Economic Moat. Value Line grades the company B+ for Financial Strength.

With regard to sales growth:

• YF projects YOY 0.4% contraction and 1.3% growth for ’24 and ’25, respectively (based on 15 analysts).
• Zacks projects YOY 0.6% contraction and 0.6% growth for ’24 and ’25, respectively (7 analysts).
• Value Line projects 3.5% annualized growth from ’23-’28.
• CFRA ACE indicates contraction of 0.3% YOY and 0.5% per year for ’25 and ’24-’26, respectively (14).
• M* reports 2-year annualized ACE of 0.5%.

My 1.0% forecast is near bottom of the range.

With regard to EPS growth:

• MarketWatch projects 4.2% and 3.8% per year for ’23-’25 and ’23-’26, respectively (based on 17 analysts).
• Nasdaq.com projects 6.3% YOY and 5.9% per year for ’25 and ’24-’26 (5/8/2 analysts for ’24/’25/’26).
• I debut Argus with a 5-year-annualized-growth projection of 18.0% [not a typo].
• YF projects YOY 3.5% contraction for ’24 and 8.0% growth for ’25 along with 5-year growth of 1.1%/year (11).
• Zacks projects YOY 4.3% contraction for ’24 and 6.3% growth for ’25 (5).
• Value Line projects annualized growth of 5.6% from ’23-’28.
• CFRA provides ACE of 0.8% YOY contraction and 3.5% growth per year for ’24 and ’23-’25, respectively (14).

My 2.0% per year forecast is near bottom of the long-term-estimate range (mean of three: 8.3%). Initial value is 2024 Q1 EPS of $5.57/share (annualized) rather than ’23 EPS of $6.12.

My Forecast High P/E is 12.0. Over the past 9 years, high P/E falls from 50.5 (’15) to 11.9 (’23) with a last 5-year mean of 16.2 and a last-5-year-mean average P/E of 13.2. I am near bottom of the range (only ’23 is less).

My Forecast Low P/E is 8.0. Over the past 9 years, low P/E falls from 28.1 (’15) to 8.6 (’23) with a last 5-year mean of 10.3. I am forecasting near bottom of the range [only ’22 (7.9) is less].

My Low Stock Price Forecast (LSPF) of $44.60 is default based on initial value given above. This is 22.8% less than the previous close and 9.5% less than the 52-week low.

Over the past 9 years, Payout Ratio (PR) ranges from zero (four times including ’20) to 23.0% in ’18 with a last-5-year mean of 13.4%. Given a propensity to cut the dividend, I am discounting this to zero.

These inputs land BYD in the HOLD zone with a U/D ratio of 1.0. Total Annualized Return (TAR) is 4.5%.

PAR (using Forecast Average—not High—P/E) of 0.8% is unacceptable for any size company. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR but even that is less than the current yield on T-bills.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only four studies in the past 90 days (my study and two outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and PR are 0.9%, 1.5%, 13.8, 9.2, and 13.4%, respectively. I am lower on the latter three. Value Line projects a future average annual P/E of 13.0 that is greater than MS (11.5) and greater than mine (10.0).

MS high / low EPS are $6.30 / $5.57 versus my $6.15 / $5.57 (per share). My high EPS is less due to a lower growth rate. Value Line’s high EPS of $8.30 soars above both.

MS LSPF of $44.00 implies a Forecast Low P/E of 7.9: less than the above-stated 9.2. MS LSPF is 14.1% less than the default $5.57/share * 9.2 = $51.24 resulting in more conservative zoning. MS LSPF is also 1.4% less than mine.

With regard to valuation, PEG is 5.2 per my projected P/E, respectively: grossly overvalued due to my low projected EPS growth. Relative Value [(current P/E) / 5-year-mean average P/E] is slightly low at 0.8.

I think MOS is robust because my inputs (including most-recent-quarter initial value) are near or below respective analyst/historical ranges. The MS sample is too small for meaningful comparison, but anecdotally its TAR of 13.4% is 8.9% per year greater than mine.

Quantitatively speaking, Boyd Gaming strikes me as a company with little going on. The only future flash is the Argus 18.0% (hopefully not a harbinger of how long I’ll be citing them). Looking backward, Boyd deserves a bit more credit. Per CFRA, its Debt-to-Capital is one of the best in the industry along with ROE and ROR. Forward P/E is second only to IGT and if the Argus projection comes to fruition, then I’ll bet some P/E expansion will pay out with it (pun intended albeit probably weak).

Per U/D, BYD is a BUY under $51/share. BI TAR criterion is met < $37 given a forecast high price ~$74.

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