On Thursday’s Boyd Gaming earnings call, Wall Street analysts wasted little time addressing the proverbial elephant in the room.

Boyd entered second-quarter earnings season on the back of reports that the regional gaming company approached PENN Entertainment about a potential acquisition attempt. A transaction that brings together the two casino giants would be the largest in the industry since El Dorado Resorts completed a $17.3 billion buyout of Caesars four years ago.

After a brief overview from CEO Keith Smith, Stifel analyst Steven Wieczynski inquired about the intense M&A speculation. Without mentioning PENN by name, Wieczynski asked Boyd executives to expound on their appetite for considering an M&A transaction in the current environment. While Smith did not discuss any negotiations with PENN, he provided more color than the analyst anticipated.

“If you look back over the history of our company, the majority of our growth has come through M&A,” Smith replied. “I think we’ve developed a great expertise at it. We know how to buy properties right, companies right, and we know how to extract value out of these companies once they’re part of our portfolio.”

A simple look at the financial profile of Boyd Gaming suggests a potential acquisition of PENN Entertainment may be difficult to pull off. PENN, which has a multi-year partnership with ESPN BET, has faced intense pressure from activist investors to consider selling the company. Last August, PENN gained the exclusive right to power ESPN’s sports betting operations in a deal that could cost the company up to $2 billion.

Amid the speculation, PENN continues to trade around $20 a share, a valuation of around $9 billion. The enterprise value is considerably higher than the $7.8 billion valuation Boyd received in late June. The wide gulf may require Boyd to seek outside financing to conduct a transaction.

"No," says @howardstutz. "Honestly, it really doesn't." $BYD pic.twitter.com/l9M75gzVyl

— Last Call (@LastCallCNBC) June 20, 2024

When addressing how Boyd could finance an acquisition, Smith noted it’s dependent on the “specific facts and circumstances around the transaction.” Smith also remained close to the vest on any possible deal with PENN, adding that it’s “hard to speculate” how the company will seek financing for any transaction.

Boyd Gaming CFO Josh Hirshberg indicated that the company has set a long-term leverage target of under 3.0x of traditional net leverage. But as Truist Securities analyst Barry Jonas wrote in a Thursday research note, Boyd hasn’t set a leverage “ceiling.” Theoretically, Boyd can borrow heavily to finance a major acquisition, before an attempt to swiftly de-lever, Jonas emphasized.

Carlo Santarelli, an analyst with Deutsche Bank, also found it difficult to get a read on Boyd. On one hand, the comments from Thursday’s call could be interpreted as “supportive of Boyd engaging in larger scale M&A,” according to a Deutsche Bank note. On the other, the comments could “seemingly dampen the speculation” around Boyd and large scale M&A,” he wrote.

As speculation intensifies on a potential deal, reports surfaced that Flutter is considering exploratory options in its dealings with PENN. Just after the July 4 holiday, TheDeal.com reported that Flutter is “sizing up” certain assets of the operator. Beset by high promotional and marketing expenses, PENN announced a round of layoffs affecting numerous ESPN BET employees last week.

If Flutter can take over PENN’s interest in ESPN BET, the power play will have major implications for the U.S. sports betting market. Flutter is the parent company of FanDuel Sportsbook, the nation’s definitive leader in market share.

— Sports Handle (@sports_handle) July 9, 2024

Beyond its retail casino properties, Boyd owns a 5% stake in FanDuel Group. Smith has been pleased with FanDuel’s recent performance, remarking that the operator continues to post strong results. As a result, Boyd increased its expectations for the company’s online segment to a range of $65 million to $70 million in EBITDAR for the full year.

Both Boyd Gaming and PENN Entertainment posted significant gains Friday on the back of the earnings call. Boyd shares surged more than $5 from Thursday’s opening price and hit a session-high of $63.96 on Friday morning. Amid increased options activity, Boyd fell back to $61 a share, still up 4% on the session.

PENN gained more than $1 a share to hit a session-high of $20. After opening at $18.93 on Friday, PENN shares gained more than 8% at session highs. PENN shares are down more than 25% since the company announced the transformative ESPN deal last August. PENN is scheduled to report second-quarter earnings on Aug. 8.