Should Investors Roll the Dice on Boyd Gaming?

Like many casino operators, Las Vegas-based Boyd Gaming (NYSE:BYD) had a rough 2020. Restrictions on indoor entertainment, lodging, and restaurants made for a trifecta of bad fortune.

But you wouldn't know it by the company's share price. Boyd Gaming stock is stunningly back within reach of its all-time high set way back in April 2005. It rode an eight-month winning streak into this week's earnings report leaving investors to wonder if it's too late to place a bet on this sizzling reopening play.

What Were Boyd Gaming's Q4 Results?

Boyd Gaming reported fourth-quarter revenue of $635.9 million which was down 24% year-over-year but surpassed the Street's forecast of $632.3 million. Closures at Par-A-Dice and Valley Forge had a significant impact on sales but both properties have since reopened. Adjusted EPS of $0.46 beat the analyst consensus of $0.39.

The main takeaway from the report is that Boyd Gaming achieved a record profit margin of 33.1% led by strength in its Midwestern and Southern casino properties. The expanded margin points to gains in operating efficiency. If they can be sustained as customer volume increases, Boyd Gaming may be in for some bigger 2021 results.

Overall, management has done a nice job of cutting costs during the pandemic by eliminating nonessential spending, executive pay cuts, and furloughing employees. The synergistic effects of recent acquisitions have also made for an improved expense profile.

What are Boyd Gaming's Growth Opportunities?

The core growth engine for Boyd Gaming is its land-based and riverboat casinos that are located in Las Vegas and various U.S. states. It has properties in 15 states that together account for roughly 36% of the U.S. population. An improvement on the coronavirus front and further loosening of government restrictions are sorely needed to improve customer traffic.

But the most compelling growth avenue for Boyd Gaming is online gaming. The prospect of being able to generate revenue from consumers that don't even have to step foot into a Boyd Gaming casino has huge ramifications for the company's profitability. Granted these consumers won't be spending on food, drink, and hotel accommodations, but to have a second major, minimal cost revenue stream is the trump card.

The company's partnership with FanDuel is a big-time growth catalyst given the rising popularity of mobile sports betting. The nationwide collaboration involves the creation of sportsbook offerings in states which have legalized sports betting. Boyd Gaming uses the FanDuel platform at its casino properties. The partnership has launched the product in five states and a mobile sports betting app in Indiana, Illinois, New Jersey, and Pennsylvania. They have just scratched the surface with more states expected to enact sports betting legislation.

In April, Boyd Gaming is preparing to launch an iCasino product in Pennsylvania under the Stardust brand. Interactive gaming platforms have witnessed strong demand during the pandemic due in part to their social nature—and the Stardust offering fits this mold. Casino enthusiasts are embracing the opportunity to yuck it up with fellow gamblers and dealers in what is quickly becoming the future of gambling entertainment.

Boyd Gaming also has a partnership with MGM Resorts through which it can continue to expand its online and mobile gaming presence in states where both companies have physical casinos.

Is Boyd Gaming Worth the Gamble?

After rallying 44% and 43% in 2019 and 2020, respectively, Boyd Gaming stock is already up 30% this year. Is it to hot to touch?

Analysts seem to think the stock has more room to run. Following the February 16^th earnings report, Deutsche Bank reiterated a 'buy' rating on Boyd Gaming and put a Street-high $65 price target on the $55 stock.

Based on the solid quarter and more importantly, the prospects for reopening demand and the iCasino buildout, more favorable commentary is likely to pour in.

More work is needed on the balance sheet. Boyd Gaming carries a hefty $4 billion debt load compared to $519 million of cash. A further reduction of the debt would strengthen its financial health and support its ability to reinstate its dividend and share buyback program in 2021.

Despite the sharp rally off the March 2020 low, Boyd Gaming shares are not that expensive from a valuation perspective. The PEG ratio of 2.2x remains cheap given the growth opportunities ahead in the online casino space. In fact, it is one of the lowest PEG ratios among consumer discretionary names.

The below industry 11.5x price-to-cash flow ratio further suggests the stock is inexpensive. It's hard to believe that a stock that has quintupled in less than a year is still a value play but that is the case with Boyd Gaming.

So, while investors have missed a big run in Boyd Gaming, they are not that late to the party. The stock has been widely viewed as a reopening play, but it is the growth opportunity in online gaming that is still underappreciated by the market. Slotting in an allocation to Boyd Gaming here can still lead to a nice payout.