PENN NATIONAL GAMING PERFORMANCE REVIEW

Penn National Gaming (PNG) management describes its operations in the company’s most recent 10K, as follows:

“We are a leading, diversified, multi-jurisdictional owner and manager of gaming and pari-mutuel properties. We currently own or manage nineteen facilities in fifteen jurisdictions, including Colorado, Florida, Illinois, Indiana, Iowa, Louisiana, Maine, Mississippi, Missouri, New Jersey, New Mexico, Ohio, Pennsylvania, West Virginia, and Ontario. ..The vast majority of our revenues is gaming revenue, derived primarily from gaming on slot machines and, to a lesser extent, table games. Other revenues are derived from our management service fee from Casino Rama, our hotel, dining, retail, admissions, program sales, concessions, and certain other ancillary activities, and our racing operations. Our racing revenue includes our share of pari-mutuel wagering on live races after payment of amounts returned as winning wagers, our share of wagering from import and export simulcasting, and our share of wagering from our off-track wagering facilities (‘OTWs’).”

In addition to its casinos, PNG owns racetracks: Penn National, Charles Town (West Virginia), Zia Park (New Mexico), Raceway Park (Ohio), Sanford-Orlando Kennel Club, Freehold (New Jersey), and Hollywood Slots Hotel and Raceway (Maine). It also owns four off-track betting facilities in Pennsylvania. In 2010, PNG purchased Beulah Park in Columbus, Ohio. The wisdom of this investment depends on whether Ohio voters authorize slots at Ohio’s seven racetracks in the November 2010 election. PNG will build two casinos in Ohio, in Columbus and Toledo, which were authorized by voters in November 2009.

For the year ended on December 31, 2009, PNG’s net revenues fell by 2.2% from 2008, or by $53.8 million. As with gambling per se, this decrease was attributed to economic conditions during 2009 that curbed consumer spending. PNG reported a net loss of $265 million in 2009, up from a net loss of $153 million in 2008. Diluted earnings per share were a negative $3.39 in 2009 and a negative $1.81 in 2008. PNG recorded a $6.1 million pre-tax loss in 2009 for insurance deductibles relating to the fire at its Empress Hotel.

PNG has a debt-to-equity ratio of .98 and 49.5% of its capital structure is debt. The company’s current ratio is a strong 2.18, meaning that it can easily meet maturing short-term obligations.

During the past 52 weeks, PNG has traded (on the Nasdaq exchange) in a range of $22.45-35.18. The stock closed on April 16, 2010, at $29.25 per share

Investment manager Martin Sass, who has $7 billion in his care, recently was quoted in Forbes magazine about PNG: “[Sass] owns Penn National Gaming and International Game Technology, both of which he figures will see increasing orders as state and local governments look to casinos to raise revenue. Penn National trades at eight times free cash flow. ‘[It’s] fairly priced based on present cash flow and earnings, but that gives no credit to cash flow and earnings coming onstream,’ Sass says. Penn National has projects opening in Maryland, Ohio, and Kansas in the next several years. Also, the Pennsylvania legislature just approved gambling [table games]. That’s not a bad catalyst.”

Sass’ assessment makes sense. With a turnaround in the economy and an increase in consumer spending on leisure and entertainment, PNG should turn profitable. Moreover, the expansion in Maryland, Ohio, and Kansas should eventually provide a boost in revenues and earnings. Another factor in PNG’s favor is that the company has very capable top management.

PNG is a long-term play for patient investors.

Bill Shanklin is not currently a shareholder of Penn National Gaming.

Copyright © 2010 Horse Racing Business

Comments

  1. Graeme Beaton says

    Penn, according to ICapital, has $700m in cash equal to $9 a share. Subtract that from its market cap and all its operations/ assets lumped together are valued at just $1.4bn. I don’t own them either, but I would agree with your assessment that Penn is well placed to benefit from a recovery in consumer demand, if one is forthcoming and we don’t suffocate under a cloud of volcanic ash or lose it all on the chalk in the Derby.

  2. we have been twelve year patrons of hollywood in tunica.we have always loved it and considered it our home away from home.over the last year this place has become a toilet.the staff seems unhappy,it is not real clean,and the hosts seem to cater to those that give them the most money and best gifts.if you ask a question about something you will likely get three different answers from three different people.nobody knows whats going on.at the rate they are going i wouldnt be surprised to see this place a ghost town next year.we visited vegas for six weeks and we fell in love with the m.we will be going back for six monthes out of the year to live and planned to make m our home casino.if penn turns m into the hollywood i can assure you,i will not be going there. for twelve years hollywood was great.we brought dozens of people here over the years and they all loved this place.our friends no longer come here.they have chosen sams town.please fix this problem at hollywood.

Speak Your Mind

*