The Struggle for Regional Casinos Continues

The regional gaming market continues to be in a funk, following trends in the rest of the economy. Penn National's (NASDAQ: PENN  ) first-quarter earnings show progress in some areas and a maddeningly slow recovery in others.  

Overall, revenue rose 8% from a year ago to $798.2 million -- just slightly below the company's own guidance. Adjusted EBITDA rose 10% to $220.7 million and net income dropped 17% to $65.3 million, or $0.63 per share.

Growth was driven by the opening of Hollywood Casino Toledo, Hollywood Casino Columbus, and the acquisition of Hollywood Casino St. Louis, so it wasn't organic in nature. The company is planning to build another resort near San Diego and finish an expansion in St. Louis, and is proposing an $807 million project in Massachusetts.

Regional gaming fights for limited dollars
The challenge of growing revenue organically in regional gaming isn't felt by Penn alone. For Caesars Entertainment (NASDAQ: CZR  ) , a recovery in Las Vegas has been masked by weakness in regional markets, where it still generates a majority of its revenue. Pinnacle Entertainment (NASDAQ: PNK  ) and Boyd Gaming (NYSE: BYD  ) are also fighting competition, and in Boyd's case, a rapidly declining market in Atlantic City. Over the past year, overall growth has been anemic at these companies.

PENN Revenue TTM Chart

PENN Revenue TTM data by YCharts.

Instead of seeing the chart above as a sign that growth and returns may not be strong in regional gaming, companies have doubled down. Pinnacle is acquiring Ameristar Casinos,  Penn, as I mentioned above, is planning a the resort near San Diego and expanding in St. Louis, and Wynn Resorts (NASDAQ: WYNN  ) and Caesars are fighting over a new license in Boston. For Wynn, this is an effort to expand the brand in a high-profile city, but Caesars has enough trouble with debt and declining revenue in other regional markets. When will the growth of gaming stop?

Nearly every company has plans to expand in one way or another, even as gaming dollars are stretched thin. For investors, this means that return on investment isn't as high, which can be seen in Penn's results today. Higher revenue couldn't mask higher costs, and net income fell, reducing return on investment. Still, the company's plan to spin off a REIT to own its real estate assets should unlock some value, and investors are projected to walk away with a $2.44 dividend. I'm clearly cautious about the regional gaming market, but it's these moves that make Penn National the best breed in this very competitive market.

What is Wynn doing in Boston?
Why exactly does Steve Wynn have his eyes on Boston if regional gaming is struggling? The Motley Fool answers this question and more in our most in-depth Wynn Resorts research available for smart investors like you. Thousands have already claimed their own premium ticker coverage, and you can gain instant access to your own by clicking here now.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2371533, ~/Articles/ArticleHandler.aspx, 9/27/2016 3:02:29 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,223.23 128.40 0.71%
S&P 500 2,157.63 11.53 0.54%
NASD 5,304.04 46.54 0.89%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/27/2016 2:46 PM
BYD $19.16 Up +0.15 +0.76%
Boyd Gaming CAPS Rating: **
CZR $7.91 Down -1.56 -16.44%
Caesars Entertainm… CAPS Rating: *
PENN $13.27 Up +0.10 +0.76%
Penn National Gami… CAPS Rating: ***
PNK $12.36 Up +0.04 +0.32%
Pinnacle Entertain… CAPS Rating: *
WYNN $100.99 Up +0.18 +0.18%
Wynn Resorts CAPS Rating: ****