Gaming companies are again moving to expand their reach in the regional gaming market, scooping up properties at a discount from competitors. Just over a week after Penn National (Nasdaq: PENN) bought a St. Louis casino from Caesars Entertainment (Nasdaq: CZR) for a song, Boyd Gaming (NYSE: BYD) is joining the fray.
Earlier this week, Boyd said it's buying Peninsula Gaming for $1.45 billion, a price estimated to be 7 times EBITDA when you project out Kansas Star's first-quarter results for a full year. This is on par with what Penn paid for its recent purchase, once you account for tax advantages.
The Midwest market has been the target of the latest moves and drove Boyd's results in 2011. This acquisition will give the company two more casinos in Iowa, one in Kansas, and two in Louisiana. After generating $26.8 million in EBITDA during the first quarter, the Kansas property looks like the crown jewel of the portfolio.
Confidence in America
Boyd and Penn don't have exposure to Asia like some of their larger competitors do, but they are making big bets on the future of America. I haven't been a fan of regional gaming, with Ameristar Casinos (Nasdaq: ASCA), Boyd, and Caesars Entertainment all having trouble growing, but if you can buy assets at the right price, it's never a bad idea.
Boyd was able to get $1.2 billion in financing for the acquisition, and with rates as low as they are, this should immediately add to earnings. This isn't a reason to run out and buy shares, because I still like Penn's moves better, but it is a good step for Boyd Gaming.
Not all companies are created equal
I see the winners in the future of regional gaming as being the companies buying in at an attractive price instead of holding on to old assets. MGM Resorts (NYSE: MGM), Caesars, and Ameristar are holding assets they've owned for a long time and aren't really adding to earnings right now as revenue stagnates. Penn and Boyd, on the other hand, are picking up new assets that will immediately add to earnings. I like the latter position better, and I'm adding an outperform CAPScall on Penn National to back it up.
For more companies that are rocking domestically check out our report, "The Future is Made in America."
