Penn National Gaming Announces 1Q Results; Placing Stock Under Review

Penn National Gaming PENN reported first-quarter results that were slightly above consensus estimates. Revenue increased 12.6% to $667 million, and adjusted EBITDA increased 19.6%. Adjusted EBITDA margins were 26.7% for the quarter, compared with 25.5% in 2010, as the company benefited from a leveraging of its fixed cost structure. However, the increases in revenue and EBITDA were driven entirely by the opening of a new Hollywood Casino in Perryville, Md., which opened in the third quarter of 2010, and by the expansion into table games at the company's Charles Town racino and Penn National racino. Revenue at the other properties declined 0.2%, with EBITDA increasing only 3%. Given the continued weak same-location sales growth in the quarter, excluding the impact of the introduction of table games at two properties, and our view that the company will experience significantly intensified competition in the next several years, we are placing Penn under review to reassess the assumptions in our financial model and transfer coverage to another analyst.