Penn National Gaming Q3 Results Below Estimates, Improves Full-Year Revenue Guidance (PENN)

Casino operator Penn National Gaming (NASDAQ: PENN) reported a decline in the fiscal 2012 third-quarter net income compared to the corresponding period last year. The company also missed the third-quarter revenue and earnings estimates of analysts. While providing guidance for the fourth-quarter 2012, the company improved its revenue guidance and decreased the EPS guidance for the full year. Penn National also stated that it will conclude the acquisition of Harrah’s St. Louis gaming and lodging facility from Caesars Entertainment in early November and the transaction will be earnings accretive.

The Pennsylvania-based Penn National manages gaming and pari-mutuel properties in the United States and Canada. Apart from being a gaming operator, the company is involved in hotel, dining, retail, admissions, program sales, concessions, racing operations and other ancillary activities. Penn National operates 28 facilities in 19 jurisdictions.

Net revenue for the third quarter of fiscal 2012 declined to $707.04 million from $710.9 million in the last year’s corresponding quarter. For the reported quarter, the average revenue estimate of analysts was $713.5 million. The net income for the third-quarter decreased to $46.45 million, or $0.44 per share, from $70.80 million in the third-quarter of 2011. The EPS estimate of analysts is $0.56. The company reported $19.2 million in lobbying expenses for the third quarter.

For the fourth quarter ending December 31, 2012, Penn National gave a revenue guidance of $782.4 million and net income guidance of $59.1 million, or $0.56 per share. The company also improved the full-year 2012 revenue guidance from $2.87 billion to $2.94 billion. However, Penn National decreased the full-year net income guidance from $261 million, or $2.46 per share, to $250.8 million, or $2.37 per share.

Earlier in mid-December 2011, Wells Fargo issued a “market performer” rating with a price target in the range of $35.00 to $40.00 per share. The share price, which was hovering at around $34.00, rose to $40.15 in the first week of February 2012. Penn National’s announcement that upcoming Columbus and Toledo casinos are on budget and poised to bring in significant growth took the share price to $44.78 in the month of March. On April 9, Imperial Capital stated that shares of Penn National is fairly valued and set a target price of $47.00. The first-quarter profit and revenue reported on April 19 topped analysts’ estimates as well.

With a “strong buy” rating from Zacks equity research, the shares touched a high of $45.50 in mid-May. The company also announced a deal to buy Maryland Heights Harrah’s Casino from Caesars Entertainment for about $610 million. Penn National also became the third largest gaming company as per a report published by the Toledo Blade on May 21. By the end of May, Penn National was trading at a price of $46.00 per share. With a rating downgrade by KeyBanc Capital Markets to “hold” from “buy”, the share price of Penn National touched at low of $37.75 per share in the last week of July. However, the share price climbed back to $43.52 in the first week of October on a report of an increase in gaming revenue in the first six months of the year compared to the same period in 2011. With an improved guidance for the fourth-quarter, Penn National ended the day at $42.90, up $1.31 or 3.2% on a volume of 1.16 million shares.

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Published by Steve Hackney

Steve Hackney is a corporate finance professional with over 14 years of experience in cash management and investing. He earned a Bachelor of Science in Finance from Florida State University and holds a Certified Treasury Professional certification. Steve lives in Orlando, Florida with his family.