Pros No Longer Like The Odds On Boyd Gaming

The house doesn’t always win, at least according to Morgan Stanley analyst Thomas Allen. Allen downgraded Boyd Gaming Corporation BYD from Overweight to Equal Weight, but raised its price target from $23 to $26.

Boyd shares are up 26 percent this year, and is ahead of consensus for 2017–2018, but the analyst doesn’t see a favorable risk/reward any longer.

The Bull Case

On the lucky side, Allen estimates the company could see 33 percent further upside, to $34 per share.

The winning streak would have to be driven in part by growth in the Las Vegas Locals market as a result of increased development, employment, and home values.

Boyd would also need to see greater-than-expected acceleration in regional gaming demand from low and middle-income households.

Increased margins in these areas, along with the company’s recent dividend initiation, would support valuing the company at a higher multiple.

The Bear Case

Allen’s bear case would see the stock fall back from the mid-$25 handle it’s currently at to $18, about a 30 percent downside.

This would result from Las Vegas Locals tailwinds failing to transform into gaming revenues, which are flat this year. The company has also struggled with its regional properties.

In this scenario, Allen thinks an average multiple of 8.2x would be fair.

Given these extremes, MGM Resorts International MGM and Wynn Resorts, Limited WYNN may turn out to be more attractive gaming stocks.

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