In its December 4 issue, BusinessWeek speculates Boyd Gaming Corp. (BYD) may be the next takeover prospect following the Harrah’s Entertainment Inc. (HET) $15.5 billion buyout offer by Texas Pacific Group and Apollo Management. The casino industry’s third-quarter numbers were at or above Wall Street analysts’ predictions.
High levels of casino play and generous average daily rates resulted in greater revenue generation per customer visit. Boyd, however, posted an unexpected loss for the third quarter largely a result of the sale of a badly performing casino.
Boyd is an attractive target because of its land holdings. Boyd owns 63 acres on the Las Vegas Strip, the epicenter of the American gaming industry. In early 2007, Boyd will conduct a land swap with Harrah’s giving it an additional 24 acres. The company owns and/or operates 17 casinos in Nevada, Indiana, Illinois, Louisiana, Mississippi and New Jersey.
Boyd’s shares closed up over 11% yesterday on news of the $4.7 billion Station Casino buyout bid by its founding family and an affiliate of Colony Capital LLC. Analysts also report fundamentals in the casino industry arestrong and are likely to continue for the coming months.
Analysts cite the health of the domestic economy and the healthy Asian economy as reasons for confidence in the gaming industry. In addition, casinos are reporting relatively high occupancies, suggesting the industry has moved past the concerns about occupancy rates and pricing.
Further illustrating the recent furor over gaming, Kirk Kerkorian, who recently cashed out of his GM stock position, has reported his investment company will pay $55 a share for MGM, representing a greater than 10% premium over market price at the time the deal was announced.
Company Profile:
Boyd Gaming Corporation operates as a multi-state gaming company in the United States. Boyd also owns and operates a travel agency in Hawaii and an offsite sports book in Las Vegas. Boyd is a 50% partner in a joint venture, which owns a company responsible for the operation of the famed and highly profitable Borgata Hotel Casino & Spa in Atlantic City, New Jersey. The company was incorporated in 1988 and is headquartered in Las Vegas, Nevada.
The Echelon Casino Project:
Boyd Gaming’s Echelon Place will be the replacement casino for the famed Stardust Resort & Casino at a cost of approximately $4 billion. Construction is slated to begin in early 2007 and the Grand Opening is scheduled for 2010.
At $4 billion, Echelon Place will be the second-most expensive hospitality industry development ever. The details of the project include a 140,000 square foot casino, 4 hotels providing 5,300 rooms, 25 restaurants and bars, the 650,000 square foot Las Vegas ExpoCenter, and a convention center with 1 million square feet of space.
The Echelon Resort, specifically, will include some 3,300 rooms and will be operated by Boyd. The names of the new Echelon Place hotels are: Shangri-La Hotel, Delano Hotel, Mondrian Hotel, and Echelon Tower. The Stardust will remain open until the end of 2006.
A Potential Trade:
With the development of Echelon Place, Boyd’s stock price is nicely positioned for some neutral-to-bullish activity over the next few months. Searching for January 2007 covered calls on PowerOptions Option Chain Tool identified the following trade:
| Boyd Gaming Corp. (BYD) $46.70 Expiring 1/20/2007 47 Days to Expiration | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| OPTION | Expiration/Strike | Opt. Bid |
%Dnsd. Prot |
%If Unch. |
%If Asgnd |
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| BYDAI | 07 JAN 45.0 | $3.50 | 7.50% | 4.20% | 4.20% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The Boyd covered calls stock options position is in-the-money and provides outstanding downside protection of 7.5%, a solid potential profit of 4.2% if unchanged or assigned.
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[tags]BusinessWeek, Harrah’s, Texas Pacific Group, Apollo Management, Las Vegas, Nevada, Indiana, Illinois, Louisiana, Mississippi, New Jersey, Station Casino, Colony Capital, Kirk Kerkorian, GM, MGM, Hawaii, Borgata, Atlantic City, Echelon Place, Stardust, Shangri-La Hotel, Delano Hotel, Mondrian Hotel, Echelon Tower, BYD, Boyd Gaming Corp., HET, Harrahs Entertainment Inc., covered call investment strategy, investment strategy, iron condor, option income, poweroptions, selling naked puts, stock option trading, stock options[/tags]