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It seems that most of my gaming research and analysis has reached negative conclusions recently. At the same time, that same research keeps leading me back to PENN on the long side. Gaming operators have a liquidity problem. PENN has a liquidity bonanza. Gamers need to sell assets and de-lever. PENN is a buyer with no competition in a buyer’s market. Las Vegas is in serious trouble. PENN has no Vegas exposure but could buy into the market at the bottom. MGM, WYNN, LVS are still expensive. PENN is cheap and a valuation resistance discussion can’t be had until the stock has at least a 4 in front of it. Industry return on investment is dropping like swimming world records at the Olympics. Budgets are being busted and cash flows are declining. PENN’s capex is limited and what they spend on an acquisition (asset or company) will likely be at a discount. Unlike Colony/Station, Columbia Sussex/Aztar, ASCA/East Chicago, MGM/CityCenter, BYD/Echelon, etc., PENN won’t be buying at the top.

In my opinion, the two big themes surrounding this industry are liquidity and ROIC. PENN shines on both. Oh and by the way, PENN also shines on my partner Keith McCullough’s quantitative model.