Boyd Gaming Scores Big With Peninsula Gaming Acquisition

| About: Boyd Gaming (BYD)

Boyd Gaming (NYSE:BYD) shares traded up after announcing a key acquisition in the Midwest and Southern regions of the United States. Shares traded up 8% before the market opened Thursday, but finished the day with a 4% gain to close at $7.25. Boyd acquired five casino properties through an acquisition of Peninsula Gaming LLC. The acquisition price of $1.45 billion will add to Boyd's debt load, but will be accretive to earnings immediately.

The existing Peninsula Gaming LLC properties are:

· Kansas Star Casino - Wichita, Kansas

1,411 slots, 35 table games

· Diamond Jo Casino - Dubuque, Iowa

987 slots, 19 table games

· Diamond Jo Worth - Northwood, Iowa

972 slots, 22 table games

· Evangeline Downs Racetrack & Casino - Opelousa, Louisiana

1,424 lots, 980 horse stables, seating for 1,295

· Amelia Belle Casino - Amelia, Louisiana

838 slots, 17 table games

The acquisition comes with a price point of 7 times trailing EBITDA of properties open over a year and an estimated price on the newer Kansas Star Casino. The payment price will raise if Kansas Star's EBITDA hits $105 million by the end of 2015. Boyd will owe 7.5 times any amount over the $105 million mark.

Here are the most recent (2011) earnings for the five Peninsula Gaming properties:

Casino Net Revenue (in millions) EBITDA (in millions)
Diamond Jo Casino 68.9 23.9
Diamond Jo Worth 93.9 38.7
Evangeline Downs 115.4 30.1
Amelia Belle 48.0 14.3
Kansas Star 6.1 3.3

Kansas Star Casino opened in December of 2011 and is still in Phase I of its development. The new casino posted EBITDA of $26.8 million on net revenue of $50 million. The casino opened with 1,411 slots and 35 table games. In January 2013, the casino will add 425 slots to create a new total of 1,836. Table games will increase by 10 to a new total of 45 games. The Kansas Star will also get an accompanying Hampton Inn & Suites that will start with 150 rooms in January 2013. The Hampton hotel will add 150 more rooms in 2015 as well during Phase II of the casino. Phase II will see the Kansas Star complete with 2,000 total slots, and 55 table games.

The acquisition gives Boyd Gaming a presence in eight states. The company's previous EBITDA (03/30) was split as:

· Las Vegas 34%

· Atlantic City 31%

· Midwest and South 35%

With the acquisition the new EBITDA will be:

· Las Vegas 24%

· Atlantic City 22%

· Midwest and South 35%

While other casino companies are expanding in Macau and international regions, Boyd decided to capitalize on the Midwestern and Southern parts of the United States.

The list of existing Boyd Gaming properties is:

· The Orleans Hotel & Casino - Las Vegas

· Gold Coast Hotel & Casino - Las Vegas

· Suncoast Hotel & Caino - Las Vegas

· Sam's Town Hotel & Gambling Hall - Las Vegas

· California Hotel & Casino - Las Vegas

· Fremont Hotel & Casino - Las Vegas

· Main Street Station Casino - Las Vegas

· Vacations Hawaii - Las Vegas

· Borgata Hotel Casino and Spa - Atlantic City

· The Water Club - Atlantic City

· Par-A-Dice Hotel & Casino - Atlantic City

· Blue Chip Casino Hotel Spa - Indiana

· Delta Downs Racetrack Casino - Louisiana

· Sam's Town Hotel & Casino - Louisiana

· Treasure Chest Casino - Louisiana

· Sam's Town Hotel & Gambling Hall - Mississippi

· IP Casino Resort & Spa - Mississippi

Boyd's deal will give them estimated EBITDA of $694, helping it close in on Penn National (NASDAQ:PENN). Penn National has a trailing twelve month EBITDA of $753 million. The acquisition increases Boyd's free cash flow by $70 million, bringing its annual total to $185 million. The big negative of the acquisition is the increased debt load. Boyd's debt now sits at over $3.5 billion and there have been discussions of a lower debt rating.

Over the past fifty two weeks, shares have traded in a range of $4.12 to $9.83. Today's share price has the company trading close to the midpoint of its fifty two week range. Boyd's market capitalization is relatively small at $627 million. Analysts are expecting earnings per share in 2012 of $0.29 and $0.40 in 2013. On a price to earnings ratio, shares seem expensive with rates of 25 (2012) and 18 (2013). Personally, I think the Kansas Star is a gem for Boyd and will greatly increase its EBITDA and free cash flow. If Boyd can start paying down debt and focus on its new core assets, the shares are a buy. Look for shares to hit $10 by the end of 2012.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in BYD over the next 72 hours.

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