"Depending on the magnitude, a reduction in cost/scope would be positive for the shares because it would reduce concerns about returns…[and] improve negative sentiment/supply concerns for Las Vegas as a whole since Echelon accounts for a significant portion of the capacity entering the market by 2010," states Curtis in a memo issued Monday afternoon.
Boyd is not exploring an outright cancellation as some have suggested, Curtis says. "[Boyd] can continue to refine and evaluate the project until groundbreaking scheduled for [the second quarter of 2007], and so until then, we think the possibility of cancellation is remote," he says.
JP Morgan is maintaining its "Neutral" rating on Boyd's shares in part because it believes EPS estimates may need to be revised downward over the next several months. Curtis' fourth quarter EPS estimate of $0.51 is nearly 20% lower than the consensus estimate of $0.61 in part because he does not believe the deceleration of Gulf Coast cash flows have been properly reflected in analysts' models.In addition, he says "we have a more conservative view on the ability of the Las Vegas locals market to instantly absorb $1.6 billion of new investment [Red Rock Station, South Coast] in [the second half of 2006], though over the longer term this is likely." The company's share price stood at $36.67 at the end of trading Tuesday, off $0.24 on the day. The company's share price hit a 52-week low of $33.10 at the start of the month.
In June, Boyd Gaming said would stop taking November and December reservations for Stardust. The company plans to operate the 48-year-old property through the end of the year, but there are concerns that as workers migrate to other jobs staffing levels may be too low near the end of the year to offer appropriate service.
Boyd plans to replace the 1,500-room Stardust casino-resort with four hotels housing 5,300 rooms, a 140,000-sf casino, theaters, a shopping promenade, spas and convention space. The plan is to start the redevelopment in 2007 and complete it in 2010.
Within the $4-billion Eschelon Place will be the $2.9-billion Echelon Resort, which would be wholly owned by Boyd. Echelon Resort will include 3,300 of the 5,300 rooms in two high-rise towers, each with its own full-service spa, as well as the casino, two theaters (one with 4,000 seats and the other with 1,500 seats), 25 restaurants and bars, and a pool area.
The rest of Echelon Place would be developed via joint ventures and include three additional hotels, a 750,000-sf outpost of the Las Vegas ExpoCenter, another 200,000 sf of retail space, and several more restaurants, bars and nightclubs. The property also will have covered parking for 8,000 vehicles.
Boyd Gaming has entered into a 50/50 joint venture with the Morgans Hotel Group for two of the Echelon Place hotels, which will cost about $700 million, and has inked a management agreement with Shangri-La Hotels and Resorts for the third. As for the project's retail component, Boyd says it is in discussions with potential strategic partners for a 50/50 joint venture development.
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