Jeff does a thorough job of explaining that Boyd Gaming
Moreover, while it is easy to dismiss most of Boyd's properties as second-tier, the cash they generate is just as green.
For those who prefer a company with a sharper image, let's not forget that Boyd owns some valuable zoned real estate, as well as enough cash -- thanks in part to the South Coast sale -- to build something flashy. Furthermore, Echelon Place will dramatically brighten the company's portfolio, and management is targeting a superb cash-on-cash return in the mid-teens.
Finally, while it is true that Station Casinos'
I have the highest respect for Jeff's analytical work -- and his poker skills. But in this case, I think the deck is stacked against him, and not just because Boyd is trading at less than 10 times trailing cash flows, versus a much richer multiple of 15 at Station.
Station may or may not be a better company than Boyd, but that is not the subject of our debate. Instead, we are discussing which is the superior investment -- and that question has pretty much been answered already, thanks to the current $82-per-share offer that is currently on the table for Station.
Yes, a large group of stockholders still believes Station is undervalued -- and I won't dispute that. However, even a sweetened bid of up to $100 doesn't leave terribly much upside potential if shareholders are forced to cash out their chips.
By contrast, the lofty premiums attached to this and other recent industry buyouts initiated by private-equity groups -- which apparently have a better handle than the public markets on how to value gaming companies -- suggest that Boyd is ripe for a sharp rally.
There is also speculation that Boyd might even be the next in line for a buyout, though I hope not -- and I would gladly sacrifice a one-time bounce in favor of the long-term gains the company is poised to deliver over the next five years.
By Jeff's math, the current bid for Station represents 8.8 to 10 times projected 2007 property-level EBITDA, after stripping out the value of its real estate and managerial contracts.
If Boyd can garner a multiple even at the low end of that range, then the shares would have a back-of-the-envelope value of approximately $66 per share, including 87 as-yet-undeveloped acres of strip real estate worth, in a conservative estimate, $25 million per acre (or $2.17 billion total).
In other words, Boyd could be undervalued by 40% or more -- even before the cash flows from Echelon and other new projects start piling up. Meanwhile, Station shareholders will likely be looking for a new place to reinvest their money.