Morgan Stanley upgraded Boyd Gaming Corporation (NYSE:BYD) to an Equal Weight rating (from Underweight) and raised their 12-month price target on the stock to $75.00 (from $69.00) following the company’s strong Digital performance through its relationship with Fanduel and better brick and mortar results.
Despite apprehensions regarding the short-term trajectory of BYD's Regional business, which represents approximately 50% of FY24 EBITDAR, and the ongoing stabilization of its Locals segment, Morgan Stanley notes the success story emerging in BYD’s Digital segment. This particular area stands out as what Morgan Stanley is calling “one of the best organic growth stories within Gaming.”
Analysts wrote in a note, “We raise our estimates and price target to account for stronger trends for both Fanduel (of which BYD owns 5%) and the broader sports betting industry. We now have 7% upside to our revised $75 12-month price target. The combination of strong Digital results in our framework, less downside to consensus estimates, and corresponding upside to our price target leaves a more balanced risk-reward, prompting our Neutral rating.”
BYD maintains its connection to a top-tier asset in the gaming industry through its 5% stake in Flutter's Fanduel. As Fanduel solidifies its position as the dominant leader in sports betting, commanding over 40% of the market share, BYD stands to gain significant advantages through marketing access agreements with Fanduel, making it a key beneficiary.
BYD is guiding to ~$50m in Digital EBITDA this year, which Morgan Stanley believes will prove conservative as the industry continues to grow. Morgan Stanley estimates $58m/$71m in Digital EBITDA for 2023e/24e, which is before considering the upside to valuation from Fanduel.
Morgan Stanley sees BYD achieving a 2023 EPS of $6.45 compared with the consensus estimate of $6.57.
Shares of BYD are up 1.5% in premarket trading on Friday.