I haven't posted here much as I sold out of all my positions in PENN during the early part of this year, but you guys need to pay attention to the news.
Fumo has come out publicly against the sales price of the Pocono track. Through his spokesperson, he feels the $280MM price at least violates the spirit of the slot legislation relating to such sales. Win or lose, this might prove a distraction that is not needed at this time.
Also, anyone notice the Indian tribe that was given permission to build a casino 20 miles outside of Cincinnati? Perhaps more competition for AGY, or maybe not. But again, something to deal with.
Maryl;and passed slots in the Senate and now an uncertain fate awaits it in the House. But what happens if the House does pass slots? Sure WVa will pass table games, but does anyone here believe there will be no impact on CT? You are living in dreamland if you simply expect CT to continue pumping the cash flow it does now. It will take greater marketing dollars to generate less revenues once MD is up and running in 2-3 years. This will also hurt the valuation the market will give to PENN.
And finally, the Governor of Illinois is contemplating a bill to extend the tax structure in the state beyond the sunset date of 6/30/05. Again, maybe it occurs, or maybe not, but again another uncertainty.
PENN is an excellent company. Great earnings and cash flow. But never forget it is not easy to operate in a government-regulated industry. At times there are pauses, and it appears one of those times is approaching. A lot of the good has been priced into PENN given its multiple to earnings. It may be a bargain down here, but it may be in a for a long tough road back to $70 as well.
Just read the news and stay on top of things. No gaming stock should ever be left on the shelf as if nothing but rosy skies are ahead of it. Too many external factors always taking shots at it. Most miss, but sometimes one needs to examine further.
I thought long and hard before I finally posted because of the very reactions that have come in. Nowhere do I doubt the viability of PENN nor its excellenmt track record. The only reason I sold out in the mid to high 60's is I felt it was going to be tough to get another 20% out of it to $80/share. Very tough, unless a suitor comes along and Carlino has made it clear in the past he is not interested.
Take away the CT growth, and how do you justify a p/e of 25-30? Even with PNRC slots and AGY, a stock price of $80 gets you a p/e of 20. How much higher can the p/e go? What about a slowdown in growth at CT? What happens if PENN is forced to sell one of the baton Rouge casinos?
Under the right scenarios PENN can travel to 80-90, but nearly everything needs to go right for it to do so. No Md. slots, no Indiana slots, no KY slots, a tax pullback without a Chicago city casino in Illinois, no Indian competition in and around L-Berg. PENN has superb management and it just might happen, but it only takes one or two items to scare off the market and put a lower p/e on PENN's earnings.
Separate the company from the market. PENN as a company will be fine, very fine. As a stock investment, it will be okay for as long as the market is willing to reward it with a higher than average p/e. But what if events transpire to make the powers to be in the market turn a little cautious. Just a little.
In my opinion PENN will be in a range between $50 on the downside to $65 on the upside this year, pre-split of course. A pretty good spread if one times it right, but that is tough.