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Boyd Gaming

(BYD) - Get Boyd Gaming Corporation Report

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) - Get Stantec Inc Report

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) - Get MGM Resorts International Report


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."

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Boyd also has been dealing with a slow ramp-up of its new South Coast casino property, located just minutes outside the southern end of the Las Vegas strip. The property won't reach its full potential until the Interstate 15 interchange is constructed in late 2007, Lerner says.

The Borgata, which is widely viewed as Atlantic City's hippest casino, has seen a temporary disruption lately due to a $525 million expansion. The first part of the plan will be finished this weekend, bringing in an additional 500 slots, 36 table games, a new 85-table poker room, and three fancy restaurants. But because 10% of the gaming devices were shut down for the construction, the Borgata's second-quarter results likely will be hampered.

Adding all these factors together, investors are expecting a messy second quarter. That, in turn, has dragged down Boyd's stock. Following other analysts, Lerner recently cut his second-quarter EPS estimate for the company by 4 cents due to the plethora of short-term concerns.

"Near term, we believe it's going to be tough for Boyd to have a substantive rally until its earnings call, outside of a gaming-wide rally," says Steven Gart, an analyst with Nickel Capital, a hedge fund that invests in the gaming sector, but doesn't own Boyd.

"Now if it turns out that the analysts have been too aggressive on their estimate reductions, the stock may indeed see a relief rally headed into the quarter," Gart says. "That being said, management tone and how they answer the Red Rock competition question will also, in our opinion, weigh greatly on the shares."

At around $40, Boyd's enterprise value is trading at 7.3 times Wall Street analysts' estimates for 2007 earnings before interest, taxes, depreciation and amortization. In comparison, MGM is trading at nine times estimates, Station Casinos is trading at 9.8, and


( HET) trades at 8.4 times.

"I feel

Boyd is one of the best values at today's prices among all the casino operators out there," says Dan Ahrens, portfolio manager with the

( GACFX)Gaming and Casino fund.

Investors buying Boyd for the long-term also may be getting in cheap on the future Echelon Place casino the company is building on the old 63-acre Stardust site on the Las Vegas Strip. The $4 billion megaresort, set to open in 2010, will include a 140,000-square-foot casino and four hotels, including the opulent Mondrian and Delano hotels that will be jointly owned with

Morgans Hotel



Given that the earnings stream from the project is still four years away, not many investors are likely to give much value to it today. But some analysts say Echelon alone eventually could be worth about $7 per share.

Gart, the Nickel Capital analyst, has his doubts about how Echelon will pan out.

"We're not necessarily sold that the northern part of the strip is a guaranteed winner three to four years from now, as we don't think we can effectively gauge the supply/demand cycle of Vegas that far off," Gart says.

Echelon will sit a little over a mile from the heart of the strip at Las Vegas Boulevard and Flamingo Road, where the Bellagio and Caesar's Palace are located.

"Historically speaking, the north end of the Strip has tended to be more mature and less visited," says Brian Gordon, principal with Applied Analysis, a Nevada-based economic consulting firm.

However, a lot of investment is coming to this area, Gordon points out.

Las Vegas Sands

(LVS) - Get Las Vegas Sands Corp. Report

will open a new luxury hotel, the Palazzo, next door to its Venetian property next year, and several new condo projects are coming to the area. The popular


(WYNN) - Get Wynn Resorts Limited Report

casino serves as an anchor for the area, a bit farther south.

Similar to the way Mandalay Bay expanded the southern end of the Strip in the 1990s, Gordon expects the "build it, and they will come" philosophy to translate into success to the north at Echelon.

Nonetheless, bearish sentiments on Boyd remain. Ed Sheidlower, a portfolio manager with Bryce Funds, recently sold off his firm's stake in Boyd and other casino stocks partly due to macro fears about the gaming industry, but also because of issues he saw developing in Boyd's last few earnings reports.

"The last few reports on Boyd have shown fewer gamblers, more competition and a loss of market share," Sheidlower says. "We were concerned with the latest earnings level and the possible slowdown in their growth rate."

Bryce Funds, which most recently held the stock in a hedge fund-like private account, sold off its Boyd shares in April after the earnings announcement, when the stock was trading just under $50. With shares now just under $39, the move appears shrewd.

Nonetheless, if Boyd approaches an area of technical support in the mid-30s, Sheidlower might contemplate a re-entry. "If it keeps dropping, I'd start to look again," he says.

"I just worry a little bit. This space continues to get affected by terrorist issues, dollar issues. It can be a pretty fickle area," he says.