Top Trade Alert – Sept 7 2023 – BYD and Barbie (MAT)

    MAT Sept 7 2023

    From our morning Report:

    Of course, since we like to “Be the House – NOT the Gambler“, I prefer to look at Sports Betting Stocks, who make money no matter who wins or loses the game. Unfortunately, the best sports betting stock is Flutter Entertainment (PDYPY) but they are an ADR and don’t have options.  

    In the first half of this year, PDYPY’s revenues rose 32% and profits rose 29% (so any gains in revenues are pretty much all profits at this point) and, at $86.73 they are a great long-term hold. Flutter is behind FanDuel and they have 36% of the US on-line market but their main income is from Europe and Australia.  

    BYD is our favorite casino stock and they own 5% of PDYPY, which is $1.5Bn worth of the stock and you can buy BYD for $65.26, which is $6.5Bn yet they make $650M a year, including $150M. This is the first year BYD will be able to sell their stake in Flutter – $1.5Bn would be plenty of money to launch their own Sports Book and they already are with B Connected Sports in Nevada, Indiana, and Iowa in the first half of 2023, offering online sports betting to its customers in those states. BYD also opened retail sportsbooks at its properties in Pennsylvania, Mississippi, and Kansas in partnership with FanDuel.  

    Interesting, right? Let’s see what Claude thinks:

    👺 Here is my analysis of Boyd Gaming (BYD) as an investment opportunity, with a focus on their sports betting prospects aligned with the NFL and basketball seasons:

    – BYD looks well-positioned to capitalize on the growth of sports betting, especially with the start of the NFL and basketball seasons. Their partnership with FanDuel gives them access to a leading sports betting platform and mobile app. FanDuel currently operates sportsbooks at all of BYD’s properties.

    – Sports betting revenue is still a small portion of BYD’s overall business, but has significant growth potential. In Q1 2022, sports betting contributed around $7 million in EBITDA for BYD out of total EBITDA of $366 million. However, BYD expects sports betting EBITDA to reach $50 million for full year 2023.

    – The start of NFL and basketball seasons generates increased interest and betting activity in sports betting. BYD should see a boost in sports book revenue and FanDuel partnership income. Their sportsbooks and mobile app are ready to capture the increased demand.

    – BYD’s ownership stake in FanDuel also gives them exposure to the broader US sports betting market beyond their casino properties. As FanDuel grows nationally, the value of BYD’s stake increases. FanDuel currently has around 36% market share of US online sports betting.

    – BYD’s strong presence in Las Vegas also positions them well, as Las Vegas sees a significant uptick in visitation and betting activity tied to major sporting events. BYD has several Las Vegas local properties.

    – Risks for BYD include increased competition in sports betting, regulatory changes impacting the legality of sports betting, and potential declines in disposable income affecting consumer spending on gaming and betting.

    – Valuation-wise, BYD appears reasonably valued trading at around 10x P/E. The potential growth from sports betting provides upside. A DCF analysis sees BYD undervalued by over 60%.

    In summary, the timing with NFL and basketball starting makes BYD’s sports betting prospects even more appealing. Their partnership with FanDuel, exposure to the Las Vegas market, and ownership stake in FanDuel give them multiple ways to benefit. The growth trajectory for sports betting positions BYD well for significant upside. BYD looks like an attractive investment opportunity for investors seeking exposure to the expanding sports betting market.

    BYD seems like the best bet to kick off the Football Season so, for our Long-Term Portfolio, let’s add them as:

      • Sell 10 BYD 2025 $65 puts for $8.50 ($8,500) 
      • Buy 20 BYD 2025 $60 calls for $16.50 ($33,000) 
      • Sell 20 BYD 2025 $80 calls for $8 ($16,000) 

    That’s net $8,500 on the $40,000 spread giving us $31,500 (370%) upside potential at $80 but, as our Members know, with such a wide spread we plan to also sell short calls for income when the stock pops.  At the moment, the Jan $70 calls are $2.40 and the $60 calls are $8 so, if the Jan $70 calls get over $6, we’d be happy to sell 5 for $3,000 – using 134 of our 498 days we have to see and we’d be on a good path for getting back our $8,500 and turning it into a free spread (with the put obligation) 

    And, just now, in our Live Chat Room, we also like:

    Mattel’s Windfall From ‘Barbie’ Goes Far Beyond Dolls – MAT is interesting at 16x with that very good tailwind. Of course there will be a Barbie 2. As noted in the article, MAT gets 5% of the gross (should be $2Bn by the end of year) plus a percentage of profits and think of the Christmas they are going to have.

    MAT at $22 is only $8Bn and they make $450M but I’d say more like $550-600M going forward so 14x(ish). We could use another play for the Butterfly Portfolio so let’s:

    • Sell 10 MAT 2025 $20 puts for $2 ($2,000)
    • Buy 20 MAT 2025 $18 calls for $6.50 ($13,000)
    • Sell 15 MAT 2025 $25 calls for $2.95 ($4,425)
    • Sell 5 MAT Jan $22 calls for $1.90 ($950)

    That’s net $5,625 on the $14,000 spread that’s mostly in the money. We have no upside risk with the short calls and we can always sell more but we’ve taken in $950 using 134 of our 498 days so 3 more sales will drive our basis down nicely – even if we just sell 5 units.