Boyd Gaming (NYSE: BYD) will report earnings on July 28. The numbers are likely to be dreadful as the company will report on business activity from April 1 through June 30. During this time, the Covid-19 pandemic forced the closing of all of Boyd’s 29 properties.
How bad do analysts expect it to be? The consensus among analysts is that Boyd will report negative earnings per share of $1.45 on $124.90 million of revenue. Assuming the revenue comes close to that number, it would be a drop of over 40% from the first quarter and nearly 60% on a year-over-year basis.
But all of that is expected and has largely been factored into the company’s stock price. The question for Boyd as well as other casinos is what’s next.
Is the worst over?
Of course, nobody knows if the worst is over. But like most companies, Boyd took steps early on to help ensure its survival. The company raised $600 million of capital at an interest rate of 8.625% through 2025 at the onset of the pandemic.
And like many companies the company took prudent steps to minimize its cash burn. These steps included cutting executive compensation, suspending its dividend, and cutting capital expenditures. Boyd even took the difficult, but necessary, step of furloughing its employees.
With all of those steps, and assuming the $124.90 million in second-quarter revenue is the low, then it appears that Boyd has ample capital to weather the pandemic. Particularly since all their properties are now open. But with cases of the novel coronavirus beginning to surge once again, there is concern that state governments may order casinos to close once again to arrest the spread.
Boyd executives were optimistic that the company will benefit from a business model that does not rely extensively on destination travelers. The company’s 29 properties generate most of their business from local and regional customers.
However, one significant point that was left unanswered on the call was how much of Boyd’s current regular customer base is age 65 or older. Company executives remarked that their customer base was already retired. The implication is that their disposable income will remain unchanged despite the economic downturn that is spreading throughout the country. On the other hand, this is also the age group at higher risk of not only contracting the novel coronavirus but also to suffer serious complications.
This is not 2008 all over again
One thing that Boyd executives emphasized during their first-quarter earnings call was that this was not the same recovery that they dealt within 2008 and 2009. As the company came back from the great recession, traffic at its casino properties was essentially the same. However, customers were spending a good deal less money.
This time around, the company projects that customers will have money to spend, but Boyd will be limited capacity at all of its properties. On the one hand, it means that revenue will be down. But according to Josh Hirsberg, Executive Vice President and Chief Financial Officer (CFO), the company’s expense structure is also going to be lower. Hirsberg was confident that the properties could get to a cash flow positive state rather quickly. That will be something to watch closely.
Online gaming and sports betting may be a catalyst
In what you can say was a stroke of good fortune, Boyd launched an iGaming product in late January. This undoubtedly brought in some revenue when the physical properties were closed. And, it’s an area that should continue to grow as gamblers may decide that it’s safer to get their fix online.
And with the relaunch of live sports, in particular Major League Baseball and soon professional basketball and hockey, Boyd should start capturing some of the sports betting dollars.
Is Boyd Gaming a Buy?
I personally find it hard to have confidence in casino stocks in the next six months. I believe the virus may present some real headwinds to physical traffic. But I’m not much of a gambler.
At the same time, I think Boyd stock, unlike other stocks, is still based in reality. The stock tumbled nearly 70% in March. It’s recovered, but investors are not getting ahead of themselves.
There isn’t an imminent reason to believe the stock will drop further. So the question is how long are you willing to wait on BYD stock to reward you without a dividend for your troubles? That’s the gamble facing Boyd investors.
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Every major global event brings with it changes to our national lexicon. Before the Covid-19 pandemic, few Americans knew what the initials PPE stood for. Today, virtually anyone knows that PPE stands for personal protective equipment.
At the onset of the mitigation policies, the goal of flattening the curve was being done to prevent our health care system from becoming overwhelmed. Part of that concern stemmed from a shortage of personal protective equipment. These are the masks, gloves, goggles and gowns that help protect medical workers against viral or bacterial infections.
As the novel coronavirus became labeled a global pandemic, the global mantra became to “flatten the curve” in an effort to prevent our healthcare system from being overwhelmed.
The United States is being referred to as being on a war time footing. Manufacturers that were already producing PPE have significantly ramped up capacity. And many companies are converting their excess manufacturing capacity to produce personal protective equipment.
In fairness, this may only be a reason for some of these companies to “keep the lights on” right now. But many of these companies have a good story to tell. And it’s that story that can make them solid investments in the future.
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