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A surprisingly good quarter out of PENN and solid guidance.

Once again, PENN did well on the cost side to offset the sluggish regional gaming trends.  EBITDA of $142.2 million beat our estimate by almost $5 million, driven primarily by better than expected margins at the two big racinos:  Charles Town and Hollywood at Penn National Raceway.  PENN raised 2010 EBITDA guidance slightly from $578m to $580m, again a surprise given the top line trends. 

EPS guidance is a little confusing as PENN includes non-recurring items, so it appears they are lowering guidance from $1.13 to $0.98.  However, that is not the case.  Q2 Adjusted EPS of $0.29 beat our $0.25, so we will likely be raising our full year Adjusted EPS estimate of $1.12 by $0.04, give or take a few pennies.

We’ll have more details later but if PENN can hit its guidance, the stock looks very cheap given the long-term growth associated with the high ROI projects in new markets, particularly Ohio.  We think PENN can grow EPS at a 25% CAGR over the next 3-4 years.

The table below summarizes the property performance in Q2 relative to last year and our estimates.

PENN SURPRISES US TO THE UPSIDE-QUICK THOUGHTS - PENN EBITDA6