Penn National Gaming Stock Has Healthy Fundamentals, Tropicana Las Vegas Sale Possible, Says Analyst

Posted on: October 17, 2019, 10:57h. 

Last updated on: October 17, 2019, 12:11h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Shares of Penn National Gaming, Inc. (NASDAQ:PENN) are off more than 30 percent over the past year, good for one of the worst performances among regional operators. But at least one Wall Street analyst is enthusiastic about the stock, noting management could sell the Tropicana Las Vegas to reduce debt, and that recent weakness in the name could be present investors with a buying opportunity.

Penn National Gaming could sell Tropicana Las Vegas to raise cash and reduce debt. (Image: Eater Vegas)

In a note obtained by Casino.org, Stifel analyst Steven Wieczynski said regional gaming revenue is steady, and player visits to Penn National venues remain in line with management forecasts.

The most important sign, though, is that unrated play continues to expand, and is running around record levels, as is spend per-visit on the VIP side,” said the Stifel analyst in a note to clients. “We remain steadfast in our support of PENN shares.”

The operator of casinos under the Ameristar, Argosy, and Hollywood brands has significant exposure to markets in the Mid-Atlantic region, including its home state of Pennsylvania. Penn National also has a large Midwest footprint in states such as Iowa and Illinois. The company operates more Land of Lincoln casinos than any other company.

Healthy Macro Environment

Wieczynski notes the case for Penn National stock is bolstered by still buoyant economic data, including consumer confidence and unemployment. Last month, the Conference Board’s consumer confidence index fell to 125.1 from 134.2 in August, a drop widely attributed to jitters about the US/China trade war. The unemployment rate in the world’s largest economy fell to 3.5 percent in September, the lowest level in 50 years, according to the Bureau of Labor Statistics.

“Macro indicators, such as consumer confidence, unemployment, and wage growth, all continue to point to a healthy environment,” said Wieczynski. “The promotional environment, for the most part, does remain rational, except for a small number of markets, and PENN noted that recent consolidation in the industry should help promotional activity over time.”

Penn National management said the Massachusetts market, where the company runs the Plainridge Park Casino (PPC) slots parlor, is currently heavily promotional because Wynn Resorts’ new Encore Boston Harbor is looking to attract gamblers and build out its list of rated players.

Tropicana Sale?

At the end of the second quarter, Penn National had long-term debt of $11.15 billion, or five times its current market capitalization of $2.23 billion. Management is looking to reduce that burden, and is considering monetizing assets, such as its video gaming terminal business in Illinois and the Tropicana in Las Vegas.

Wieczynski said the meeting he and his team recently had with Penn National executives is the first time they’ve heard management openly discuss selling the Tropicana.

“As for Tropicana, PENN noted it has recently seen interest from a number of different parties regarding the assets and accompanying land,” said the analyst.

Wieczynski adds that Penn National paid about $10 million an acre for the 35-acre Tropicana back in 2015, and based on recent Strip asset sales, the company could command as much as $20 million per acre ($700 million) for the property today.

The Stifel analyst has a “buy” rating and $28 price target on Penn National stock, implying upside of almost 40 percent from current levels.