Boyd Gaming Stock In Correction Mode?

The shares of Boyd Gaming (NYSE: BYD) have surged by 200% since the lows observed in March primarily due to the company’s strategic arrangements with FanDuel for sports betting and online gaming platforms. As the U.S online gaming and sports betting market is expected to reach a staggering $40 billion in the long-run, the shares of companies associated with sports gaming have been on a bull rally during the pandemic. With the initiation of mass vaccination and an improvement in travel demand, we remain wary of further gains in Boyd Gaming stock. Also, the company’s revenues observed a 20% contraction during the third quarter. We compare Boyd Gaming stock performance during the current crisis with that during the 2008 recession in an interactive dashboard analysis to illustrate the likelihood of a correction the stock price.

Timeline of 2020 Crisis So Far:

  • 12/12/2019: Coronavirus cases first reported in China
  • 1/31/2020: WHO declares a global health emergency.
  • 2/19/2020: Signs of effective containment in China and hopes of monetary easing by major central banks helps S&P 500 reach a record high
  • 3/23/2020: S&P 500 drops 34% from the peak level seen on Feb 19, as Covid-19 cases accelerate outside China. Doesn’t help that oil prices crash in mid-March amid Saudi-led price war
  • From 3/24/2020: S&P 500 recovers 64% from the lows seen on Mar 23, as the Fed’s multi-billion dollar stimulus package suppresses near-term survival anxiety and infuses liquidity into the system.

In contrast, here’s how BYD and the broader market performed during the 2007/2008 crisis.

Timeline of 2007-08 Crisis

  • 10/1/2007: Approximate pre-crisis peak in S&P 500 index
  • 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
  • 3/1/2009: Approximate bottoming out of S&P 500 index
  • 1/1/2010: Initial recovery to levels before accelerated decline (around 9/1/2008)

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Boyd Gaming vs S&P 500 Performance Over 2007-08 Financial Crisis

BYD stock declined from levels of around $43 in September 2007 (pre-crisis peak) to levels of around $4 in March 2009 (as the markets bottomed out), implying BYD stock lost 90% from its approximate pre-crisis peak. It recovered post the 2008 crisis to levels of about $8 in early 2010 – rising by 97% between March 2009 and January 2010. In comparison, the S&P 500 Index first fell 51% in the wake of the recession before recovering 48% by January 2010.

Boyd Gaming’s Fundamentals in Recent Years Look Strong

Boyd Gaming Revenues grew by 38% from $2.4 billion in 2017 to $3.3 billion in 2019, driven by a couple of acquisitions and gaming revenue growth. However, the company’s operating margins remained relatively flat during the same period resulting in a slightly lower EPS from growing interest expenses. Due to a sizable impact of the coronavirus pandemic on travel and tourism industry, the company’s revenues and operating cash flow declined by 40% and 70%, respectively, for the first nine months of 2020.

CONCLUSION

Phases of Covid-19 crisis:

  • Early- to mid-March 2020: Fear of the coronavirus outbreak spreading rapidly translates into reality, with the number of cases accelerating globally
  • Late-March 2020 onward: Social distancing measures + lockdowns
  • April 2020: Fed stimulus suppresses near-term survival anxiety
  • May-June 2020: Recovery of demand, with gradual lifting of lockdowns – no panic anymore despite a steady increase in the number of cases
  • July-November 2020: Weak Q2 and Q3 results, but continued improvement in demand and progress with vaccine development buoy market sentiment

Going by the recent rally and an overall macroeconomic weakness, we believe that a price correction is in the cards for Boyd Gaming stock.

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