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Analysts mostly positive on Boyd deal

Analysts responded positively Thursday to Boyd Gaming Corp’s purchase of Peninsula Gaming, which nets the company five casinos in the South and Midwest.

“The purchase allows Boyd to further diversify away from the still-struggling Las Vegas market,” Janney Capital Markets analyst Brian McGill wrote in a note to investors. “The assets that Boyd is buying are generally in stable and well-protected markets.”

After announcing the acquisition, Boyd CEO Keith Smith told the Review-Journal that the company is still committed to Las Vegas and will continue to look for opportunities to expand locally.

“It isn’t the last opportunity and it frankly does not change our desire to grow here in Nevada and in Las Vegas, (or) to expand our presence here,” Smith said. “You have to take advantage of opportunities when they arise, and there is not an opportunity in Las Vegas to invest this money.”

Boyd is spending $1.45 billion on the Peninsula deal, which includes $200 million in cash and $1.2 billion in debt.

The news was announced Wednesday after the stock market closed. Boyd shares climbed 26 cents, or 3.44 percent, in after-hours trading after losing a cent to close at $6.98 during Wednesday’s trading on the New York Stock Exchange. The stock closed Thursday at $7.24.

Properties in Las Vegas and Atlantic City, where Boyd owns half of the Borgata resort, comprise 65 percent of the company’s cash-flow base. After the Peninsula acquisition is approved toward the end of the year, that share will fall to 46 percent.

Investment adviser Moody’s in a report noted that Peninsula’s five casinos have higher cash-flow margins than Boyd’s existing properties, which will boost the company’s overall cash-flow and allow Boyd to reduce debt.

The company is entering the Iowa and Kansas gaming markets for the first time, with two Diamond Jo casinos in Dubuque and Northwood, Iowa, and the Kansas Star Casino in Mulvane, Kan., near Wichita. Boyd currently has three properties in Louisiana and will add two more, Amelia Belle in Amelia and Evangeline Downs in Opelousas.

The Kansas Star property was called the “crown jewel” of the Peninsula acquisition because the casino, currently operating in a temporary facility, has no competitors.

It moves to a permanent home in January.

But the Louisiana additions gave some analysts pause.

“After the Peninsula acquisition, we believe Boyd might have too much exposure to the Louisiana market,” Stifel Nicolaus Capital Markets gaming analyst Steven Wieczynski told investors. “Louisiana is a stable gaming market, but we don’t believe it will be a rapidly growing market over the next couple of years.”

Boyd Gaming had indicated a willingness to buy more properties in recent conference calls. Smith said the purchase was the right opportunity at the right time.

“Investors do what investors do and move on in life,” Smith said, referring to Peninsula Gaming’s owners. “Boyd Gaming does what we do, buy casinos and run them for a living. We were ready.”

Smith expects to start seeing the acquisition’s impact on the company’s bottom line in the first quarter of 2013.

Shares of Boyd Gaming defied a broad market sell-off on Thursday and gained 26 cents or 3.72 percent to close at $7.24 on the New York Stock Exchange. Some 3.34 million shares, about twice the normal volume, were traded.

Contact reporter Caitlin McGarry at
cmcgarry@reviewjournal.com or 702-387-5273.

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