In a time when the brick-and-mortar casino business is more stagnant than not, the well-managed Steady Eddies continue to outperform.
That has been demonstrated again in the latest earnings releases and outlooks from Boyd Gaming, Red Rock Resorts and Monarch Casino. They move forward by blocking and tackling rather than by dazzling investors with splashy, expensive projects in exotic locales that promise returns someday.
These companies share several key components, such as strong founding-family ownership, considerable exposure to growing Nevada locals markets and, in the case of Boyd and Red Rock, step-by-step, almost railroad timetable exact, capital growth plans.
Here’s a quick take on each of them:
- Boyd is geographically diversified and has a broad ownership base. It has steadily and meaningfully returned capital to shareholders through significant stock repurchases (BYD has 10 percent fewer diluted shares outstanding than a year ago) and a dividend yielding just under 1 percent.
Debt is less than four times EBITDA even financing a number of property expansions and renovations. Boyd also has a $750 million casino to rise in under-served Norfolk, Virginia, in partnership with the Pamunkey Indians to goose future earnings.
This steady growth in the business and in returns to shareholders comes at a stock valuation under eight times analysts’ expected 2026 EBITDA and a mere 11 times earnings per share.
For those who would like to own a piece of digital gaming, BYD offers that, too. Online generated $44 million in EBITDA last quarter and Boyd owns 5 percent of FanDuel, which, along with DraftKings, amounts to an online sports betting duopoly in North America.
There aren’t too many other companies in gaming, leisure and entertainment with such steady growth and shareholder friendly practices being delivered by proven management and selling at such modest valuations.
- Red Rock Resorts is relatively expensive compared to its peers with a stock price around 30 times next year’s earnings per share and more than nine times EBITDA.
The company also faces a hit to EBITDA of $22 million to $25 million this year because of construction disruption brought about by property renovations.
Perhaps for those reasons, Red Rock has gotten the least enthusiastic response from analysts, some of whom have “hold” ratings on the stock. But for those looking beyond this year, the investments should lead to growth that will make today’s stock price a bargain.
How can we be confident of that? Look at the track record. Red Rock grows profits. Its new Durango casino is a hit, and its expansion promises to make it an even greater success.
Most important is the long-term. Red Rock has more property expansions, a new casino after Durango likely to be announced next year, a nascent tavern business, an Indian casino coming in California and 450 acres of undeveloped land in the Las Vegas Valley to be put to productive use.
It is interesting to see investor excitement over other companies’ multibillion-dollar projects in far-flung corners of the globe that have no assurance of generating returns commensurate with those investments and then see the yawning response to a company built upon best-in-class properties serving the phenomenal growth of Las Vegas and which proves itself every day.
- Monarch is different almost to the point of being quirky.
It is a family-controlled company that in some ways operates like a privately owned company. It doesn’t hold investor conference calls, for example. Its growth plan beyond continuing to gain market share in metro Denver is to look for acquisitions. Given the state of some regional competitors, such opportunities may arise. Likewise, Monarch is in the hospitality and resort business and could grow beyond casinos.
Meanwhile, its appeal is execution, execution, execution built upon quality, quality, quality.
That makes for its steadily growing profits. And the money is piling up.
By the end of next year, MCRI should have more than $300 million in cash and no debt. That growing cash is what finances its $1.20 a share dividend and share repurchases. The company had 18.758 million diluted shares outstanding at year-end, down 4.27 percent from 19.595 million last year. Given its cash, there could be millions fewer shares by the end of next year.
In other words, whatever its strategic direction turns out to be, Monarch’s growing wealth should find its way into shareholder pockets.
