Penn National GamingPENN

Morningstar Rating

Stock Research and Analysis

by Ann Gilpin

Penn National Gaming has quickly become a major player in the gaming industry, with 18 owned properties in 15 jurisdictions. Although most of these properties were acquired using debt to fund the purchases, a canceled takeover by private-equity investors Read more

Bulls Say

Penn's financial health has improved greatly since it received its cash infusion. The net debt/capital ratio fell to 38% in 2008 from 68% in 2007. The firm has more than $740 million in cash versus $2.3 billion in debt.

Changes in Pennsylvania gaming law greatly benefited Penn's Harrisburg location. By opening a casino adjacent to its existing racetrack, revenues at the Harrisburg site more than quadrupled in just a one-year period.

The firm's Charles Town, W.Va. property dominates the Baltimore and Washington, D.C., metropolitan areas and is the only gaming property west of these two cities.

The firm's Lawrenceburg, Ind., property dominates the Cincinnati metropolitan area and is the closest casino to the city. Read more

Bears Say

Penn is still highly leveraged to its Charles Town property, which accounts for about 20% of sales and 30% of profits. Slot legislation in Maryland would probably deal a significant blow to Penn's results.

Smoking bans in Illinois led to sales declines in excess of 20% in the firm's Chicagoland properties in 2008.

An increase in gaming taxes in Illinois has allowed casinos in Indiana to spend greater amounts on marketing and advertising, which adversely affects the firm's Chicagoland properties.

The casino industry is vulnerable to the whims of government regulations. For example, in 2005, the Illinois House of Representatives passed a bill proposing the elimination of riverboat gambling in the state. Read more

Strategy

Penn diversified its revenue stream beyond Pennsylvania horse racing by acquiring gaming facilities in West Virginia, Mississippi, Louisiana, and Illinois. The firm generally prefers to buy properties Read more

Management

Overall, we believe Penn National Gaming could make some improvements to its corporate governance. Peter Carlino serves as both chairman and CEO, positions which he has held since 1994. We would rather the chairman and CEO roles be split between two Read more

Profile

Penn National Gaming is a pure-play regional gaming company. In 1996, Penn owned only a thoroughbred track and a handful of off-track wagering facilities in Pennsylvania. Read more

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