Sometimes, things happen that you cannot predict.
In investing, they are called exogenous events. They disrupt the business model but, because they come from outside an organization and cannot be predicted, they are not factored into the model or financial forecasts.
Hurricane, then tropical storm, Harvey, was an exogenous event.
Thankfully for the casino industry, Harvey did not destroy properties, as hurricanes Katrina and Rita did in Mississippi and Louisiana in 2005. The only closing was Eldorado’s Isle of Capri in Lake Charles for 18 hours.
Now that the storm has passed, the effort is to try to estimate its impact on earnings. That might be hard to do.
The guess here is that the negative impact will be brief and minor. Flood waters recede quickly and the world returns to normal in short order, except for those who suffer the tragedy of direct losses of loved ones or property. And, with no casinos damaged, the biggest loss will be loss of business that, again, should return to near normal quickly.
Casinos could actually be beneficiaries in coming months. The reconstruction from the floods will bring in workers who will seek out entertainment during off-hours and who will have full wallets to spend. That is what happened after Katrina. Of course, just as the damage from Harvey was not as devastating as that of Katrina, the impact of those free-spending recovery workers should be commensurately less, especially given the distance from the Houston area to the casinos of southwestern Louisiana.
Boyd, A Steady Grower
We’ve mentioned Boyd Gaming several times in this space as a company that appears to have a steady growth plan.
The company recently demonstrated that in its second quarter, while earnings missed analyst consensus, overall performance and corporate activities showed underlying strength.
Among the positives:
• Operating margins in the Las Vegas locals markets improved 3.3 percent in the quarter. Part of the rationale for buying Cannery, East Side Cannery and Aliante casinos is that they operated at low margins, which Boyd can improve.
• Returning capital to shareholders. BYD initiated a 5-cent quarterly dividend, bought back 600,000 shares in the quarter and intends to complete the remaining $77 million in buyback authorization in 12 to 18 months.
• Lower debt. Boyd paid down $92 million in debt this year and expects to get its debt-to-EBITDA ratio into the four to five-times range next year.
• Property improvements. While Boyd is paying down debt, it is also investing in upgrading properties, a necessary move for growth.
• Las Vegas Valley. Gaming revenue growth in the Las Vegas Valley appears to be accelerating.
Unlike most states, Nevada reports revenues by area, not by property, but July numbers suggest a strong month for Boyd.
With last year’s acquisitions, the Las Vegas valley now generates about 45 percent of the company’s gaming revenue. The locals markets and Downtown Las Vegas grew revenues $25.122 million in July, a combined 12.07 percent. Assuming Boyd has 30 to 40 percent of those markets, and assume it shared proportional growth, the inference is that BYD grew revenues by a healthy amount.
A combination of higher revenues and higher margins obviously means an even better bottom line improvement.
Boyd stock is near its 52-week high and at 17 times next year’s earnings, it isn’t overly cheap. But it also isn’t expensive. And Boyd appears to be early in a story that will develop over several years.
