The struggling economy has not been kind to the gaming sector for the past several months, and stocks like Boyd Gaming (BYD) have been beaten up as a result. That said, BYD stock might be primed for a comeback amid this wealth of negativity as the company prepares to deliver its fourth-quarter earnings report after Wednesday’s close.
Currently, Wall Street is expecting Boyd to post a quarterly loss of 22 cents per share of BYD stock, with many analysts citing — surprise, surprise — severe winter weather. Specifically, the company’s Borgata casino in Atlantic City has been smack in the middle of several severe winter storms that rolled through the U.S. earlier this season.
As a result, BYD announced in late January that it sees adjusted income from Borgata arriving at between $15 million and $17 million, down from prior guidance of $22 million to $24 million.
Pessimism Heading Into Boyd Earnings
According to EarningsWhisper.com, BYD’s fourth-quarter whisper number predicts a loss of 25 cents per share — 3 cents worse than the consensus estimate.
As you will see, this type of negativity is currently blanketing BYD stock.
For instance, data from Thomson/First Call reveals that BYD stock has only attracted five “buy” ratings, compared to 11 “holds” and three outright “sells.” What’s more, the current consensus 12-month price target for BYD stock arrives at $10 per share — a discount to yesterday’s close at $11.30 per share.
BYD stock is also heavily shorted heading into Boyd earnings report. Currently, some 11.3 million shares are sold short, accounting for a sizeable 16.15% of the stock’s total float, or shares available for public trading. This elevated level of short interest could create a short-squeeze situation for BYD stock should the company post better-than-expected quarterly results tomorrow.
Some short sellers have already cashed in their chips, as the number of BYD shares sold short plunged by 22% during the most recent reporting period. Judging from BYD’s options activity, other short sellers may be heavily hedging their bets.
Specifically, BYD stock currently sports call open interest of 65,398 contracts in the March and February series of options, compared to put open interest of just 15,790 contracts for the same period. The resulting put/call open interest ratio of 0.24 reveals that calls are more than four times as popular as puts among short-term options.
Narrowing our focus further reveals that most of these calls are located in the March series, where 60,436 calls and 15,222 puts reside. The front-month put/call open interest ratio for BYD stock comes in at 0.25. On the call side, traders are focusing heavily on the March 11, 12 and 13 strikes, while the put side sees heavy open interest at the March 10 and 11 strikes.
Click to Enlarge Drilling down on March options reveals that implieds are pricing in a potential post-earnings move of about 13.6% for BYD stock. This places the upper bound near $12.50, while the lower bound lies at $9.50.
Looking at the chart, you can see that the lower bound rests right at key technical support, while the upper bound lies at a potential breakout point for BYD stock.
Options Trade on BYD Stock
Traders looking to take a chance and bet the pass line on BYD stock might want to consider an April 11/12 bull call spread.
As of the close on Monday, this spread was offered at 50 cents, or $50 per pair of contracts.
Breakeven lies at $11.50, while a maximum profit of $1, or $100 per pair of contracts, is possible if BYD closes at or above $12 when April options expire.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.