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It’s pretty easy to see why I like the PENN story. CFO Bill Clifford and I share a similar view of the industry’s prospects. In my post on Sunday, I published Mr. Clifford’s response to The Question. His answer appropriately addressed the issues of falling ROIs and rising costs of capital. Mr. Clifford also opined that asset and casino valuations were still inflated. PENN certainly maintains a vested interest in seeing asset values fall. After all, they are the only buyer of assets/companies in the gaming sector. However, Mr. Clifford’s analysis that views valuation through the perspective of a potential private equity/strategic acquirer is spot on in my opinion. Cost of capital and required rates of return are now much higher and EBITDA remains unstable.

A very telling statement in the response relates to timing. If he believes “there are going to be some incredibly discounted gaming assets available over the next 12 to 24 months” then patience is truly a valuable virtue. PENN’s excess liquidity is certainly not burning a hole in their pockets like it was for most gaming companies over the past several years. What that says about the investment prospects in the rest of the sector is another question altogether. Pair trade anyone?
Not burning a hole in PENN's pocket