By Nathan Slaughter
Among those that don't closely track the casino industry, Boyd Gaming (NYSE: BYD) is probably not a household name. But that is rapidly changing. With more than $2.2 billion in annual revenues, Boyd is actually the nation's third-largest gaming company, trailing only Harrah's Entertainment (NYSE: HET) and MGM Mirage (NYSE: MGM).
Today, Boyd manages 18 casino resorts spread throughout six states. Combined, the company oversees nearly 1 million square feet of gaming space, containing more than 600 table games and 26,000 slot machines.
Locating the Locals
Along with rival Station Casinos (NYSE: STN), Boyd is entrenched as a leader in the Las Vegas locals market. The unique demographics of this niche are difficult to ignore. The Las Vegas metro area has been the fastest growing in the nation in the past decade, with a population base that doubled to 1.6 million people during the 1990s. And with another 7,000 people moving to the area every month, the surrounding suburbs are quickly filling with potential customers -- most of them relatively affluent and with a taste for gaming.
Generally speaking, these people prefer to avoid the hustle and bustle of the strip, instead choosing to visit their local casinos. Compared to the tourist-filled palaces lining Las Vegas Blvd., quiet neighborhood casinos typically offer affordable dining, favorable odds, and generous comps (casino freebies).
While capacity in the market has increased somewhat with flashy new resorts like Red Rock Station, regulatory barriers have limited future casino development to previously zoned areas, thereby digging a wide moat for established casinos. We think Boyd is well positioned to capitalize on this niche market in the years ahead.
Unlike Station, Boyd's geographic reach extends far beyond Summerlin, Henderson, and other Las Vegas suburbs. Along with co-owner MGM, Boyd also manages Borgata, which has quickly become Atlantic City's hottest resort. The trendy property routinely generates the market's highest table and slot machine wins on a per-unit basis. The Borgata also just put the finishing touches on a new 85-table poker room that has reportedly been packed to capacity at all hours of the day.
Elsewhere, the firm manages several historic properties in downtown Las Vegas, as well as a handful of resorts in key riverboat markets from the Great Lakes to the Gulf Coast.
Ante-Up for Growth
Boyd's plans for the resurgent north-end of the Las Vegas Strip have generated a great deal of buzz lately. By next year, the outdated Stardust will make way for Echelon Place, a sprawling $4 billion development project ambitious even by Las Vegas standards.
This amenity-laden property will give Boyd a prime opportunity to hone its cross-marketing capabilities and extract more non-gaming revenues from visitors. It will also be the final piece in the geographic puzzle. Boyd will be the only gaming company on the planet to have a strong position in all three Las Vegas markets -- locals, downtown, and the Strip -- as well as exposure to key markets in the Midwest, the Gulf Coast, South Florida, and Atlantic City.
Despite the enthusiasm for its development pipeline, shares of BYD have pulled back sharply in recent months on concerns that the Las Vegas housing market is headed for a continued slowdown.
While it is impossible to forecast exactly how the chips will fall over the next few months, we are confident that the area's population will continue to increase over the long haul -- as will Boyd's share price.
BYD 1-yr Chart