Argus Research has maintained a HOLD rating for Boyd Gaming Corp (NYSE: BYD), with the company’s shares recently trading around $64.97. Despite favorable revenue growth and strong online segment performance, Boyd faces competitive pressures in its Las Vegas Locals segment and increasing renovation costs. The HOLD rating reflects a balanced outlook, as share buybacks and a strong presence in the Downtown Las Vegas and online segments offset anticipated pressures. Investors are advised to monitor Boyd’s earnings in the face of competition from new local operators and to consider the modest long-term earnings growth rate of 18%.

Q3 Financial Performance and Revenue Growth

Q3 Revenue and Segment Gains: Boyd Gaming posted a Q3 revenue increase to $961 million, up from $903 million YoY, surpassing the consensus estimate of $917 million. Revenue growth was particularly strong in the Online segment, which rose from $90 million to over $141 million, while the Downtown Las Vegas segment grew 8%.

EBITDA and Earnings Performance: Adjusted EBITDA for Q3 reached $308 million, exceeding the previous year by $15 million and beating consensus estimates. Adjusted EPS increased to $1.52, up from $1.36 in Q3 2023, indicating resilience despite competitive pressures in the Las Vegas Locals division.

Las Vegas Locals Segment Under Pressure

Competitive Market Challenges: The Las Vegas Locals segment recorded revenue of approximately $212 million, down from $222 million YoY, and below the $213 million consensus. EBITDAR margin dropped to 45.5%, from 47.8% the prior year, as competition intensified with the entry of a new local operator.

Cost Pressures and Margin Impact: Renovation costs are expected to weigh on profitability in this segment. The market entry of new operators and inflationary headwinds may further press margins, signaling cautious growth.

Downtown Las Vegas and Online Segment Performance

Downtown Las Vegas Growth: Revenue in the Downtown Las Vegas segment rose to $53.3 million, beating the $50.9 million consensus, with EBITDAR improving to $16.5 million. Efficiency measures and high tourism demand supported growth.

Online Segment Acceleration: Boyd’s online division continues to demonstrate robust growth, with Q3 revenue surpassing $141 million, significantly above the consensus. The online segment's EBITDAR increased from $11 million to $26 million, reinforcing Boyd's digital strategy.

Capital Allocation and Share Buybacks

Active Share Buyback Program: Boyd repurchased $202 million worth of shares in Q3, reducing its share count from 100.8 million to 91.9 million YoY. The company has $633 million remaining under its buyback authorization, reflecting a commitment to enhancing shareholder value.

Financial Resilience and Dividend Yield: Boyd's low dividend yield of 1.1%, based on a $0.68 annual payout, is complemented by a robust share buyback program, providing a balanced capital return strategy for shareholders.

Long-Term Growth Outlook and Earnings Forecast

Revenue and Earnings Forecast: Argus projects a low-single-digit revenue increase for 2024, with EPS estimates at $6.20 for 2024 and $6.50 for 2025. Long-term earnings growth is estimated at 18%, driven by operating efficiencies and new locations.

Valuation and Financial Health: With shares trading at a P/E ratio of 10.37 based on the 2024 EPS estimate, Boyd’s valuation is consistent with mid-cap growth stock standards. Despite a high debt-to-capital ratio of 68.1%, the company maintains a steady ROE of 33.4%, indicating a solid return on equity.