The Hedgeye Edge
Penn National Gaming's (PENN) remains a short idea for our Gaming, Lodging & Leisure (GLL) analyst Todd Jordan.
As we have said previously (recall, PENN has been on Investing Ideas as a LONG in the past), PENN is a premier operator stuck between a rock and a hard place for the likely future. Their cost cutting and margin improvement initiatives appear to be mostly played out, revenue growth and fundamental catalysts are hard to come by for the Regional gaming space. For PENN specifically, their new CEO (former COO) could invoke change regarding capital allocation, but fundamentally we’re seeing more negative catalysts than positive.
Demographic headwinds will keep same store revenues flat at best in most regional gaming markets. With cost cutting and marketing efficiencies mostly met, and competition rearing its ugly head in a few of PENN’s core markets, EBITDA could fall short of investor expectations.
Not good for a very leveraged small cap.
PENN's Plainridge property GGR plunged 22% YoY in August. QTD, Plainridge is tracking down 19.5% YoY, which is slightly worse than our original estimate that called for a 17% decline, and certainly worse than the Street. That’s a lot of "worsts." Plainridge’s slot volumes tumbled 16% YoY. We’ve mentioned before that Plainridge will feel a lot of pressure from Encore Boston’s opening given overlapping addressable markets and a far superior slot product at Encore Boston (see slide below).
Elsewhere, the back half of the year should be challenging from a revenue growth perspective, and we see few imminent catalysts to really help drive positive sentiment.
ONE-YEAR TRAILING CHART
