BofA Bets On Boyd Gaming's Growth, Potential

Boyd Gaming Corporation BYD announced Dec. 18 that it agreed to pay Penn National Gaming PENN $575 million for its Ameristar St. Charles and Kansas City operations in Missouri and Indiana's Belterra Casino Resort and the Belterra Park property in Cincinnati.

The Analyst

Bank Of America Merrill Lynch's Shaun Kelley upgraded Boyd Gaming from Neutral to Buy and increased the price target from $36 to $42.

The Thesis

The analyst said he sees room for continued re-rating of Boyd Gaming Corp. driven by top-line growth that holds acceleration and recovery potential. (See Kelley's track record here.)

Boyd has potential for margin improvement driven by promotional discipline and rationalization, as well as late-cycle multiple expansion potential, Kelley said.

The company could have $50 million to $120 million of revenue and cost opportunity in its casino portfolio over the next couple of years, the BofA analyst said. Boyd's revenue upside could come from better growth in a low-supply, improving macro environment; acquisition synergies and recovery in Boyd's core Las Vegas locals portfolio.

Kelley expects that the $575-million acquisition of four properties from Pinnacle and the $281-million acquisition of Valley Forge casino could take Boyd Gaming to almost $900 million in EBITDAR and up to $4 per share of free cash flow, which means that the stock could reach the $42 price target if it its multiple holds.