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We expect another beat despite flooding in Tunica.

PENN has been on a hot streak of reporting good results the last 4 quarters; investors liked what they saw and heard from management, pumping the stock up an average of 6% during those four earnings days.  On July 21st, we think we'll see the hot streak continue with a 5th consecutive quarter of good results.  It’s hard to predict another 6% trading day, but if achieved, our Q2 estimates should be a positive for the stock. 

For Q2, we are projecting net revenues, EBITDA, and EPS will come in at $714.7MM, $184.5MM and $0.54, respectively.  As the table below shows, this is higher than consensus and company guidance.  The beat would come despite an estimated $5MM hit on EBITDA at its Tunica property from the Mississippi River flooding.

PENN:  5X WOULD BE A TREND - PENN2

Here are some Q2 highlights and model assumptions for PENN:

  • Q2 sequential market share gains
    • Argosy Sioux City, Hollywood Casino Joliet, Hollywood Casino Aurora, Argosy Lawrenceburg and Argosy Riverside all gained market share on a 12-month rolling basis
  • Table revenues at Charles Town continue to outperform expectations as revenues are now trending well above $12MM/month.  While slot revenues at Charles Town have been disappointing, total win is still +30% YoY.
  • We are estimating 100 bps improvement over last year in property-level margins
  • We believe PENN’s leverage ratio will be at its lowest level since 2009

Currently trading at 8x 2012 EBITDA, PENN appears more expensive than the other regionals.  However, 2012 does not include full EBITDA contribution from its significant developments in Ohio and Kansas.  If we go out to 2013 the valuation drops to a much more attractive 6x.  Although we are cautious on domestic gaming for the 2H of 2011 due to a variety of macro concerns—i.e. low US GDP growth, high unemployment, depressed housing—on a TRADE duration, PENN could have a nice boost as Q2 looks like another great quarter.