Boyd Gaming (NYSE: BYD) failed first-quarter profit projections, which initiated a big selloff in the company today. One of the reasons for this was increased competition in the Las Vegas locals market, specifically in the shape of the Durango Casino & Resort.

The regional casino operator reported that, using non-generally accepted accounting standards (non-GAAP), it made $1.51 per share in the first three months of the year. $1.59 in earnings per share was predicted by analysts. Boyd's stock fell as a result, closing at a 15.44% lower price on volume exceeding eight times the daily average.

Boyd attributed the "tough start to the year" to "increased competitive pressures in the Las Vegas Locals market" and "bad weather that is a drag on its gaming venues in the Midwest and the South." The main new opponent to Boyd's Las Vegas facilities is Red Rock Resorts' (NASDAQ: RRR) Durango Casino & Resort in Southwest Las Vegas, which debuted in December. However, Boyd is being impacted by promotional efforts from other competitors.

"The good news is that our major competitor, even with the opening of a new property really has not elevated the level of promotions,” said Boyd CEO Keith Smith in response to a question from Stifel analyst Steven Wieczynski on the company’s conference call. “It is some of the other smaller operators, independent operators kind of around town, there are some properties around the Orleans and the Gold Coast that have gotten more promotional late in 2023 and into 2024 that I think are impacting the market.”

Smith did not mention any particular smaller operators who increased their marketing efforts. Wieczynski reduced his price target for Boyd stock from $71 to $65 and reaffirmed his "hold" rating.

Boyd Stock Weakness May Have Been Predicted by Insider Selling

Boyd insiders, including Smith and the Boyd family, sold $53.4 million worth of the shares in February and March. In retrospect, that might have been an indication that the operator anticipated lackluster first-quarter performance.

During the conference call, Durango's competitive challenges were more noticeable in March than they were in January and February, Smith admitted to JPMorgan analyst Joseph Greff.  Smith informed the analyst that Boyd isn't seeing an acceleration of the weakness in the Las Vegas locals segment to begin the current quarter, nor is it seeing a reversal of it.

According to CFO Josh Hirsberg, "there are competitors in the market besides us and our biggest rival here who are responding differently to that new competition than we are." "And to help you understand the dynamics of the market, we are trying to convey that those are the people who are influencing our business, while Durango may have less of an impact." 

Boyd did not specifically address it, but Durango's rapid rise may have served as inspiration for plans last month to completely renovate Suncoast Hotel & Casino in a Las Vegas suburb. This is the Boyd location closest to Durango.

Red Rock Was Slapped Too

Boyd acknowledged that Durango is putting some pressure on locals in the Las Vegas market, but the remarks didn't help Red Rock's stock price. In reality, the stock fell 8.67% today on volume that exceeded the daily average, possibly as a result of Boyd's remarks regarding the promotional expenditures made by smaller, independent companies in Las Vegas.  With regard to Boyd specifically, Stifel's Wieczynski thinks that the operator may be one of the safer bets among local casino stocks due to its strong balance sheet and remarkable free cash flow (FCG)-generating capabilities.

“With BYD shares showing an ~9% FCF yield, we believe it’s a matter of time before investors catch on and understand shares remain undervalued when compared to peers,” concluded the analyst.