In our 4/20 post, "GAMING REGIONALS: THE FALLACY OF EV/EBITDA", we "normalized" PENN's underleveraged free cash flow. We assumed PENN would make an acquisition at 6.5x EBITDA and generate a 5% net free cash flow return. PENN outlined their return metrics in the Q1 earnings call this morning and, low and behold, our projections were confirmed: 5% is the number.
The following is our calculation of a hypothetical $1.25 billion acquisition (presumably a Strip property). We chose 1.25 billion because it essentially levers the company up one turn to about 3.5x, still under the 4x target. With PENN on the record, we can "YouTube" management when they announce their next acquisition. We believe this return focused management team will not sway from their discipline.