Boyd Soars on Suspended Project, Earnings

Boyd Gaming (BYD Quote) is surging more than 20% Friday after the casino owner said it would delay construction of Echelon Place, a giant Las Vegas development that investors viewed increasingly as a risky undertaking.

Today's news is great for shareholders. Boyd's stock has been pummeled this year by the bearish thesis that Echelon Place would destroy the company's value -- because of concerns about what sort of financing and returns on capital Boyd could achieve for the project.

As a reminder, Boyd is rated a stock to own in my Bricks and Mortar mock portfolio.

Echelon is a $4.8 billion project planned for the northern part of the Las Vegas Strip, near where Wynn (WYNN Quote) is building its next property, Encore.

Some people thought Boyd would break its debt covenants if it went ahead with the project today, and there was also worry that Morgans Hotel (MHGC Quote) would not have the money to fund the joint venture piece of the Echelon development.

"It's a big relief. Clearly investors didn't want to see them go ahead in this type of credit market," says Eric Green, portfolio manager at Penn Capital Management, which owns Boyd shares.

Boyd had said it could use its line of credit and funds on hand to build the project, but typically developers get construction financing for new projects. The worry was that Boyd would get unattractive financing rates or none at all -- given the difficult credit markets today.

The simple takeaway from the news today is that Boyd is now a much less risky stock. The company can now focus more closely on its portfolio of existing properties, which include casinos catering to residents in Las Vegas, casinos in the Midwest and the hip Borgata Casino in Atlantic City, N.J., that Boyd jointly owns with MGM Mirage (MGM Quote).