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PENN: HISTORY SHOULD REPEAT ITSELF

No need to run through the very favorable liquidity situation of Penn National and the very unfavorable leverage position of the rest of the industry. I’ve covered it in my last couple of PENN posts. Here I just wanted to put some math behind my contention that not only does PENN have the liquidity to take advantage of a buyer’s market, management has the track record to do so profitably. The following chart displays the major acquisitions/projects undertaken by the company in its history and the estimated return on investment (ROI). The returns look outstanding.

Investors are usually forced to pay up for management teams that generate these types of returns. With the company trading at around 6x 2009 EV/EBITDA, they won’t have to.




  • PENN has generated a decent to spectacular ROI on every material acquisition/project



  • Despite the recent industry downturn, LTM ROI is equal to or higher than the 1st 12 month (following acquisition) ROI in every instance. I guess PENN can operate casinos too.



  • PENN company EBITDA LTM ROIC of 17.5% exceeds industry by almost 5%




In case you missed it – from the KFT EPS call

I’m posting a key slide from the KFT earning call. Nearly every key commodity that is important to KFT accelerated from April 2008 to July 2008. As a result the company is raising prices again in 3Q08.

Restaurant operators will be happy to see prices rising in the grocery channel.


Charting China: Is The Bottom In?

Chinese stocks tacked on another +1.3% last night, taking the A Shares Index to 3045. The July to date performance is +9.5%, comfortably outperforming US indices over the same duration.

Is the bottom in? I am not sure - bottoms are processes, not points, but the chart attached begs the question as we head into what is ostensibly a positive macro catalyst with the start of the Olympics in August.

For now, I am long China for a "Trade".

*Full Disclosure: I am long China via the FXI index.
KM
  • Shanghai Stock Exchange Composite Index
(chart courtesy of stockcharts.com)

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Liquidity Watch: TED Spread Not Out Of Woods Yet...

Charts: 3 month Treasury Bill Yield Versus 3 month LIBOR Interbank Rate
  • Andrew Barber, Director
    Research Edge, LLC
TED Spread: 10 Year Cycle Chart
TED Spread: Last 2 years

Run On The Fed?

The Fed’s discount window remains wide open, and last week we saw the highest borrowing by commercial banks since the week of May 28th. At $16.4 billion/day this appropriately reflects the strain within the US Financial system. Helicopter Ben is still in business, dishing out cheap money.

KM
Picture courtesy of Blue Wire @ http://www.bullnotbull.com/gallery/images/g-helicopter-big.jpg

The US Bank Failure Chart, Updated...

Chart - US Bank Failures, Total Assets: 1. Access to Capital continues to tighten, as Cost of Capital continues to heighten.
KM
Chart by Andrew Barber, Director, Research Edge, LLC

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