A Turnaround in the Making at This Casino

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Shares of Boyd Gaming (NYSE: BYD) have been under pressure since the financial crisis. Like many domestic casino players, Boyd took on too much debt as it embarked on an aggressive expansion. The result is a collection of 22 casinos and racetracks across eight states. Boyd's biggest footprint is in the prime Las Vegas market where its casinos cater to the local market and have built a loyal customer base. Boyd also operates the Borgata, the top property in Atlantic City, N.J. 

Shares jump on Q2 earnings

Shares of Boyd closed 18% higher after the release of second-quarter earnings. Revenue increased 20.3% to $738.7 million from $614.1 million during the same quarter last year. Adjusted EBITDA grew 40.7% to $160.2 million. Net income rose to $11.6 million without adjustments compared to $1 million last year. The positive results reflect the acquisition of Peninsula Gaming, which Boyd acquired in November of last year. CEO Kevin Smith said of the results

We are making significant progress towards our goals of strengthening our balance sheet and positioning ourselves for continued growth. Operating efficiencies and effective marketing programs drove solid growth across our Las Vegas properties. Our company is moving in the right direction, and I am optimistic about the outlook for our business.

To strengthen its balance sheet, Boyd has unloaded non-core assets. The company sold its Dania Jai Alai and Echelon properties this year. By selling these two assets, Boyd received more than $400 million in proceeds and eliminated more than $20 million in annual operating costs.


The strategy at Boyd and two of its main competitors, Caesars Entertainment (NASDAQ: CZR) and MGM Resorts International (NYSE: MGM), is to use their regional casino properties to create rewards programs to increase traffic at their Las Vegas properties. Regional casino customers typically gamble in their home market and make an occasional trip to Vegas. By having properties in multiple markets, customers can use their rewards at any of their preferred casino company's properties.

Shares in both Caesars and MGM closed higher as well after the Boyd earnings release. Both have similar business models and strength in one's business is typically positive for other players on the back of industry tailwinds.

Caesars owns and operates casinos in 13 states, Canada and internationally. It competes with Boyd in the markets of Nevada, New Jersey, Louisiana, Mississippi, Illinois, Indiana, and Iowa. To remain competitive, Caesars is spending over $1 billion to upgrade hotels and add attractions to appeal to non-gamblers, such as the giant Ferris wheel it's building in Las Vegas.

MGM competes with Boyd in Nevada and Mississippi. Where it doesn't compete is in Atlantic City, N.J. where MGM is Boyd's partner in the Borgata. MGM had put its 50% interest up for sale under pressure from New Jersey gaming regulators over its Macau operation. So far, no buyer has emerged for the stake and MGM has filed an application with New Jersey regulators to keep its stake in the Borgata. MGM never wanted to sell its stake in the first place, but was under pressure from regulators due to its partnership in Macau with Pansy Ho, whose father regulators suspected had organized crime ties.

MGM is the most fortunate of the three companies in that it has a Macau gaming license. Macau is now the largest gambling hub in the world. Gaming revenue in Macau grew 20% year-over-year in July. MGM owns 51% of MGM Macau and received regulatory approval this year to build a second resort on the Cotai Strip in Macau. In the U.S., MGM is seeking regulatory approval to build new casinos in Massachusetts and Maryland. MGM is still looking to grow outside of its core Las Vegas market.

Online gambling

The opportunity that all three companies are after is in online gambling. They are positioning themselves to take advantage of this huge opportunity. Boyd is in a prime position to benefit due to its operation of the Borgata resort in Atlantic City, N.J. The Borgata has rolled out its in-room gaming feature and submitted an application to New Jersey for online gaming through its Borgata operations. New Jersey passed legislation legalizing online gambling on February 26 of this year. According to Bloomberg, online gambling could occur between three-and-nine months from the time the legislation passed.

Borgata has partnered with online gaming provider Bwin.Party Digital Entertainment. Together, the companies plan to offer a full suite of games, including poker, slots, and table games under the Borgata and Party brands, including PartyPoker. For MGM, it sees the opportunity in New Jersey and it wants to retain its interest in the Borgata.

Caesars is looking to capitalize on online gambling by offering stock in its emerging online-gambling business. Last year, Caesars generated $207.7 million in revenue from its interactive segment compared to $66.5 million the year before. Its interactive unit will include its social and mobile games, the World Series of Poker, and regulated online gambling games. In New Jersey, Caesars has partnered with online gaming provider 888 Holdings.

Foolish assessment

The recent earnings report from Boyd is the start of better things to come for shareholders. The company is focused on paying down its debt and increasing profitability. Online gambling legislation has already passed in Nevada, Delaware and now New Jersey. Other states are also weighing online gambling legislation.

Boyd is in a prime position to benefit with licensed properties in multiple states and the top property in New Jersey. Look for online gambling to be the prime growth engine over the long term for Boyd, MGM and Caesars.

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