Keith shorted PENN in the Hedgeye Virtual Portfolio at $35.29. According to his model, there is TRADE and TREND resistance at $35.91 and $37.44 respectively.
A long-time regional gaming darling by Wall Street, PENN has lost some of its luster and is facing some formidable challenges—cannibalization, a large capex budget, new competition, and slowing growth. Contrary to what management said on its 3Q conference call, PENN seems to be feeling the heat from the new Rivers casino that opened in mid-July. As the chart below shows, PENN’s market share in Illinois has tumbled to its lowest level since June 2009 (Joliet fire) and its total gaming revenues in the state fell 10% YoY in October.
In addition, PENN’s two largest properties by revenue generation—Hollywood Casino at Charles Town Races and Hollywood Lawrenceburg—have seen growth stagnate recently. Since the table anniversary, Charles Town and the West Virginia market have only grown in the low-single digits. The same can be said about table games revenue at Hollywood Casino at Penn National Race Course, which after a fast start, has stabilized at $3MM/month. Performance may decline at that property in the coming months as more competition comes online in the Delaware River Valley e.g. Revel, Arundel Mills, Valley Forge.
It doesn’t help PENN that overall regional gaming performance has gotten off to a miserable start in 4Q. While the bulls will point out that an unfavorable calendar in October (one less Friday vs a year ago) accounted for the underperformance, we believe even if state revenue numbers improve, PENN will likely be a laggard rather than a leader.