Penn National Gaming Is Still Undervalued With the Spinoff Behind it

Penn National Gaming's stock has stagnated since it's spinoff, but compared to peers, it presents an interesting opportunity.

May 19, 2014 at 11:53AM

Penn National Gaming (NASDAQ:PENN) released it's quarterly earnings and forward guidance recently, and the market punished the stock due to the negative news. Even with the poor short-term news, compared to Ceasars Entertainment Corporation (NASDAQ:CZR) and Las Vegas Sands (NYSE:LVS) Penn's shares remain dramatically undervalued.

Earnings guidance
On April 24, Penn issued a press release announcing its financial results for the prior three months. This release also provided forward guidance for its income statement for the 2014 fiscal year.


2014 Revised Guidance

2014 Prior Guidance

Net revenues

$2,513 million

$2,625.40 million

Adjusted EBITDAR

$674 million

$701.9 million

Rental expense

$-418.1 million

$-421.6 million

Adjusted EBITDA

$256.2 million

$280.3 million

Other expenses

$-245.8 million

$-258.4 million

Net income

$10.4 million

$21.9 million


Diluted EPS

$0.12 million

$0.24 million

Source: SEC 3/24/14 8K

The company revised it's guidance downward for net revenue and net income by $112 million and $11.5 million, respectively. With these revisions, diluted EPS is expected to be $0.12. While this is not good news, Penn shares still look cheap, especially as the market punished the stock after the announcement.

Enterprise multiple
As discussed in my previous Penn article, valuating the stock using the enterprise multiple approach is better than using a P/E multiple, primarily because it is difficult to know what Penn will earn in the long-term, as many states have just begun legalizing gambling. An enterprise multiple valuation highlights the value of Penn relative to it's peers, and benchmarks by using its debt and equity outstanding.

Enterprise multiple is enterprise value (EV) / earnings before interest, taxes, depreciation, and amortization (EBITDA). The enterprise multiple relates a firm's takeover cost to its earnings potential. As such, it serves as a proxy of how long it would take for the company to pay its entire value back.

Penn Enterprise Value


Average Diluted Shares

88.68 million

Market Price


Market Cap

$985.22 million

Bank Debt

$748.78 million


$296.68 million


$292.99 million

Enterprise Value

$1.737 billion



$695 million

2014 Estimated EBITDA

$256 million


2013 Enterprise Multiple


2014 Estimate ent Multiple


Source: SEC 10K and 8K

EV reflects the market value of an entire company. To calculate EV, add up the capital structure, then subtract its cash. Penn has $749 million in bank debt outstanding, $296 million in senior notes and convertible preferred shares, which were included in the market cap for simplicity. After adding these with market capitalization and subtracting the $293 million in cash, EV comes out to $1.73 billion.

Penn's 2013 EBITDA was $695 million. It's 2014 revised estimated EBITDA is $256 million. The decrease is due to the $422 million rent expense paid to Gaming and Leisure Properties under the terms of the master lease occurring from the recent

Penn's revised expected 2014 enterprise multiple is 6.79, which means it can earn back its entire value in approximately 6.72 years. Competitors such as Caesars and Las Vegas Sands have enterprise multiple's of 13.35 and 16.32 respectively.



Las Vegas Sands

Enterprise Value

 $23.5 billion

 $72.77 billion


 $1.76 billion

 $4.46 billion

Enterprise Multiple



Source: Yahoo finance

The difference in enterprise multiple between Penn and it's two competitors is mind-blowing. Currently Caesars is unable to cover it's interest payments, and has approximately $27 billion in liabilities. If Caesars does go under, shareholders will likely loose everything in bankruptcy court. It is shocking that Caesars, which has serious solvency issues, is granted an enterprise multiple of more than two times that of Penn.

Foolish Takeaway
The market was not happy when the decrease in forward guidance was released for Penn. Foolish investors should also be upset, but should keep a level-head to the short-term news, especially since the stock trades at a great price relative to peers. With an enterprise multiple of less than 1/2 of Caesars, Penn National is a buy.

Are you ready to profit from this $14.4 trillion revolution?
Let's face it, every investor wants to get in on revolutionary ideas before they hit it big. Like buying PC-maker Dell in the late 1980s, before the consumer computing boom. Or purchasing stock in e-commerce pioneer in the late 1990s, when it was nothing more than an upstart online bookstore. The problem is, most investors don't understand the key to investing in hyper-growth markets. The real trick is to find a small-cap "pure-play" and then watch as it grows in EXPLOSIVE lockstep with its industry. Our expert team of equity analysts has identified one stock that's poised to produce rocket-ship returns with the next $14.4 TRILLION industry. Click here to get the full story in this eye-opening report.

christian sgrignoli has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information