Shares of regional gaming company Penn National Gaming, Inc (PENN 12.66%) rose as much as 11.6% in trading Thursday after the company updated guidance for the first quarter of 2017.
Management said they now expect first quarter 2017 revenue to be between $770 million and $771 million, up from a previous estimate of $761 million. Adjusted EBITDA is now expected to be $222 million to $223 million, up from $209.3 million guidance. And when you pull out the master lease payments on properties, the net adjusted EBITDA is expected to be $110 million to $111 million, up from $97.4 million.
The increases are a result of better-than-expected revenue, but also show the leverage Penn National has in the business now that it leases most of its real estate. An increase in revenue will flow straight to the bottom line -- although the reverse is true as well.
This is an incredibly strong result, and if the momentum continues, it will lead to a much better 2017 than expected. And it could give management some freedom to reduce debt or save cash for the possibility that results take a turn for the worse in the future, a big risk now that the REIT model is in effect. What investors will want to watch for is some more long-term momentum, because that could continue to push shares higher. With the results we saw today, I'm surprised the stock isn't moving even higher for Penn National -- giving investors a buying opportunity.