By Thom Calandra, CBS MarketWatch
Last Update: 6:03 PM ET Nov 12, 1999 More StockWatch
Commentary New!
NEW YORK (CBS.MW) -- Warbling Wynn, as the New York Post labeled Las Vegas mogul Steve Wynn, may have raised eyebrows at a hospitality industry conference this week in New York, but it was a little-known gambling company that got some investors' respect.
First, the Wynn episode: Wynn of Mirage Resorts (MIR: news, msgs) broke out into song at the gaming conference, giving his audience a preview of a new show he hopes to stage at the Mirage. Alas, bankers at the conference were less than impressed, it seems. Flamboyant Wynn, who operates some of Las Vegas's classiest casinos, including Bellagio, later saw Bear Stearns reduce its opinion of struggling Mirage to "neutral" from "attractive."
Analyst Robin Farley of Deutsche Banc Alex. Brown, which hosted the investment conference, credits spiffy properties such as Bellagio with drawing more traffic to Las Vegas. But that's another story.
Which brings us to another company that presented at the conference: Boyd Gaming Corp. (BYD: news, msgs), a tiny operator of casinos with a $400 million market capitalization on the New York Stock Exchange.
The company owns or operates a dozen casinos, seven of them in the Las Vegas market, like little-known Sam's Town and better-known The Stardust, and others across the United States. One that's going up in Atlantic City, N.J., The Borgata, is a joint venture with Mirage Resorts.
"This company is the cheapest stock in the casino group," says Stephen Kroll, managing director of brokerage Monness Crespi and Hardt in Manhattan.
Kroll saw Boyd executives tell their story -- sans the crooning -- at the gaming conference this week. He figures the company will earn 65 cents a share this year and as much as 82 cents next year.
With its stock at 6 1/4 or so Friday, the current price-to-earnings ratio of 9 or so is far cheaper than similar small casino companies. What's more, Boyd, headed by CEO William Boyd, has paid off $130 million of debt in the past seven quarters.
Debt is no small matter in the casino business. Steady or shrinking cash flows at some casino operators make debt payment schedules onerous. Classy new casinos like Bellagio and the Venetian in Las Vegas are making the so-called "strip" in that city more competitive for small casino operators.
Boyd in its latest report points out that its debt is 3.4 times trailing 12-month cash flow. CEO Boyd has said that when the company receives $72 million early next year from the Mississippi Band of Choctaw Indians, he will use the cash to retire yet more debt. The money is part of a pact that lets the band take over management of the Silver Star Resort and Casino in Philadelphia, Miss.
Kroll expects some millennium attention for Boyd, which at year's end is hosting a Wayne Newton New Year's Eve extravaganza at the Stardust on the Las Vegas strip.
"The book value of this company is about 10 a share," said Kroll, who owns the shares on behalf of clients. "If it sells at half the multiple of the rest of the group, like Park Place Entertainment (PPE: news, msgs), the stock is a double." Park Place is a large casino and hotel company that sports a market capitalization of $3.8 billion and a price-earnings multiple of 35.
Boyd easily could follow the path of another small casino company, Stations Casino Inc. (STN: news, msgs), which operates Palace Station, Boulder Station and other casinos for working-day folks, Kroll points out. That company's shares, which have tripled in a year, sell for a price-earnings multiple of almost 50.
Boyd Gaming shares Friday, before this article was published, sold for 6 3/16, down 1/16.
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