A Bet on Boyd

12/16/2005 12:00 am EST

Focus:

Nancy Zambell

Editor, Wall Street's Best Investments and Wall Street's Best Dividend Stocks

Each year at The Las Vegas Money Show,  Nancy Zambell and I try our luck at blackjack. But luck plays no part in her stock analysis. Indeed, her last gambling stock pick rose 78% in 18 months. Here, the editor of UnDiscovered Stocks, now places a bet on Boyd Gaming.

"In 1941, Sam Boyd arrived in Las Vegas with just $80 in his pocket. From $80 to more than $2 billion in annual revenues - Boyd Gaming (BYD NYSE) has come a long way. Today, it owns 18 gaming properties and has expanded geographically as the gaming industry finds itself being welcomed across the country. Boyd is now in the gaming business in Nevada, New Jersey, Mississippi, Illinois, Indiana, and Louisiana. And despite the storm damage to its Louisiana and Mississippi facilities last quarter, Boyd is proving itself to be hurricane-proof. 

"Meanwhile, there is a new face to Atlantic City that began when Boyd and Mirage developed a 50/50 joint venture with the opening of the lavish $1 billion Borgata in 2003. The Borgata, the first new casino in Atlantic City in 13 years, is now planning a two-part expansion, adding 800 rooms, suites and resort condos. And i n Nevada, casino gambling revenue hit $1.01 billion in September, up 9.6% from a year earlier, continuing the 14 consecutive month increases in the state's gambling revenues. That was the 3rd month of the year and only the 3rd time in the state's history that gaming revenues have blown past $1 billion.

"In the casino industry, expansion is the name of the game.Boyd is continuing its expansionary ways with the development of its $600 million South Coast Hotel and Casino. Slated to open in early 2006, the resort will include an equestrian center, expected to be among the best in North America, and the first in Vegas. Next up, may be the 63 acres near the Stardust and a redevelopment of the company's Barbary Coast property. As gaming grows, so grows Boyd.

"The growth in the Las Vegas and Atlantic City has translated into superb earnings. Boyd had a great third quarter with revenue increases in Las Vegas and Atlantic City more than offsetting the impact of hurricanes Katrina and Rita. Sales were up 2.7%, to $537 million. The company earned 57 cents a share, which was significantly better than Wall Street's 51 cents estimate and ahead of last year's 41 cents a share. Boyd now expects its fourth quarter profits to come in somewhere between 58 and 62 cents a share, higher than analysts' 54 cents estimate.

"Meanwhile, Boyd's financials are in great shape, and it is beating the pants off its competition. Yet, its shares remain significantly undervalued. In my view, the company has fabulous opportunities to grow in expanding markets. It has a proven track record of turning sales into bottom line growth. And I like that the firm is diversified geographically. Meanwhile, there is strong insider ownership of 51% of the company's shares. Finally, the stock is still undiscovered, as institutions own just 37% of Boyd's shares and just six analysts follow the company. I recommend purchase of Boyd under $50."

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