Stakes Get Higher for Boyd Gaming

Boyd Gaming (BYD) shares have come under pressure lately as investors fret about the health of the Las Vegas locals market and construction interruptions at the company's Atlantic City casino.

But the recent selloff may have created a nice buying opportunity for Boyd's stock, some fund managers say.

Since the company announced first-quarter earnings in late April, the stock has fallen from $54 to around $40.

Much of the decline stemmed from Wall Street analysts cutting their revenue and earnings estimates for Boyd's second quarter. The worry is that increased competition from a new Station Casinos (STN) project in Vegas and temporary construction disruptions at Boyd's Borgata casino in Atlantic City will drag down short-term fundamentals.

"I think that Boyd has tremendous asset value. There is a lot of long-term opportunity," says Eric Green, portfolio manager with Penn Capital Management, which owns Boyd. Green says the stock is worth closer to $60, and he has loaded up on more shares during the recent dips.

Boyd's 19 properties include casinos catering to the locals in Vegas, along with riverboat casinos in the South and Midwest. The company owns half of the hip Borgata property with partner MGM Mirage (MGM).

In mid-April, Station Casinos opened Red Rock Casino, an upscale property catering to locals that is located 25 minutes northwest of the Vegas Strip. Although there are no data yet, analysts project that Red Rock is hurting sales at Boyd's nearby Suncoast casino, which used to be the primary draw in this submarket.

Even if there is an impact on Suncoast, Deutsche Bank analyst Bill Lerner says it will be only temporary, and that the market will eventually absorb both casinos. There are "8,000 people a month migrating to Las Vegas," he says. "At the same time, you don't have any notable new locals market supply in the near to medium term."