Pretty much every gaming company is reporting record profits these days, and racetrack and casino operator Penn National Gaming (NASDAQ:PENN) -- another strong investment alternative to Las Vegas Strip powers MGM Mirage (NYSE:MGG), Harrah's Entertainment (NYSE:HET), and Wynn Resorts (NASDAQ:WYNN) -- proved no exception.

For the third quarter, Penn National's diluted earnings rose 27.3% to $0.56 per share, as net revenues climbed 6.5% to $288.7 million. Meanwhile, EBITDA (earnings before interest, taxes, depreciation, and amortization) grew 12.1% to $72.4 million.

Leading the way, Penn National's racetrack and slot operation, or racino, in Charles Town, W.Va., grew revenues 16% to $104.5 million, boosting EBITDA 22% to $30.5 million. The company's Hollywood Casinos in the Chicagoland and Tunica, Miss., markets both experienced revenue growth, though EBITDA at the Chicagoland property declined slightly. Results at Penn National's three casinos along the Gulf Coast -- which account for about a quarter of revenues -- were tarnished by the recent hurricanes.

Penn National's stock has doubled over the past year and a half and now carries premium value. The main attraction is the company's presence in racetracks. The expansion of gaming in the Northeast U.S. to include slot machines has provided a major boost to the company's potential cash flow and value.

This past summer, Pennsylvania enacted into law a bill that will allow up to 61,000 slots at 14 sites, seven of which are racetracks (see "The Magnitude of Pennsylvania's Slots"). With regard to that, Penn National said in its earnings release that it expects to open the slot facility at Penn National Race Course in early 2006. In addition, because the new legislation only allows one company per slot operation (or 1 1/3 licensed slot operations per company), Penn National just a couple of weeks ago announced the sale of its second Pennsylvania racetrack -- Pocono Downs -- to the American Indians who run the Mohegan Sun in Connecticut for $280 million.

Penn National will use the $175 million in expected net proceeds to pay down debt and develop the new slot facilities. It also anticipates opening a 1,500-slot facility at its Bangor Historic Track in Maine in mid-2006.

In reality, Penn National's riverboat casino operations are nothing special. Personally, I don't think they quite rival riverboat pure play Argosy Gaming (NYSE:AGY), much less Ameristar Casinos (NASDAQ:ASCA) or Harrah's. Aside from Hollywood Aurora in Chicagoland, Penn National lacks a legitimate player on this front, and even that property doesn't crack the Chicagoland market's top five. That said, one other thing is explicitly true: The expansion of slot-based gaming at racetracks has clearly unlocked a whale of a value and will be the key driver to cash-flow growth at Penn National for the next several years.

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Fool contributor Jeff Hwang owns shares of Ameristar Casinos.