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Regional Gaming Faces a Long Road to Recovery

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The regional gaming business continues to struggle, and earnings from Penn National (NASDAQ: PENN  ) and Pinnacle Entertainment (NASDAQ: PNK  ) are showing the challenge facing the industry.

Penn National's revenue was up 7%, to $761.4 million, and EBITDA was up 11%, to $211.4 million, but that improvement was the cause of acquisitions and new openings. The Hollywood Casino Toledo, Hollywood Casino Columbus, and a 50% joint venture at Hollywood Casino at Kansas Speedway were new openings over the past year, and the company acquired Hollywood Casino St. Louis. Four new casinos only caused a 7% increase in revenue, which is unimpressive at any time. 

Pinnacle is in the same boat. It only added L'Auberge Baton Rouge, but because it breaks out each casino's revenue and EBITDA, it's easier to see what trouble the company is in. Every casino saw a decline in revenue year over year, and even with the addition of L'Auberge Baton Rouge, the company had a 1% decline in EBITDA, to $72.7 million. 

Pinnacle's acquisition target Ameristar Casinos (UNKNOWN: ASCA.DL  ) also saw a 1.7% drop in revenue in the quarter, to $291.3 million, but was able to squeeze out a 13% increase in income to $20.0 million from cost-cutting measures.

The economy and competition collide
Penn, Pinnacle, and Ameristar point to continued struggles for Caesars Entertainment (NASDAQ: CZR  ) , which will report earnings on Monday. Most people don't realize that Caesars actually gets about 65% of its revenue from outside of Las Vegas, giving it huge exposure to the regional gaming market. 

For all four companies, the struggling economy and expansion of gaming across the country will continue to put pressure on results. Ironically, the companies that grow through building new casinos are hurting returns at existing casinos, therefore hurting the whole industry. It's a brutal game that these companies are playing, fighting for gaming dollars.

I think the whole regional gaming market is worth avoiding for investors, because supply expansion doesn't look to be slowing down, and the economy isn't going to be picking up quickly, either. That points to lower revenue for companies across the board.

One stock that's a buy
Regional gaming stocks are in rough shape, but the Motley Fool's chief investment officer has selected his No. 1 stock for this year, and it's already crushing the market. Find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company.

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Related Tickers

12/31/1969 7:00 PM
ASCA.DL $0.00 Down +0.00 +0.00%
Ameristar Casinos CAPS Rating: No stars
CZR $7.45 Up +0.05 +0.68%
Caesars Entertainm… CAPS Rating: *
PENN $13.57 Down -0.06 -0.44%
Penn National Gami… CAPS Rating: ***
PNK $12.34 Up +0.10 +0.82%
Pinnacle Entertain… CAPS Rating: *