{"id":236884,"date":"2022-10-11T14:30:05","date_gmt":"2022-10-11T19:30:05","guid":{"rendered":"https:\/\/www.casino.org\/news\/?p=236884"},"modified":"2022-10-11T15:17:05","modified_gmt":"2022-10-11T20:17:05","slug":"penn-entertainment-spending-could-be-risky-says-analyst","status":"publish","type":"post","link":"https:\/\/www.casino.org\/news\/penn-entertainment-spending-could-be-risky-says-analyst\/","title":{"rendered":"Penn Entertainment Spending Could Be Ill-Timed, Says Analyst"},"content":{"rendered":"

On Monday, Penn Entertainment (NASDAQ:PENN) announced $850 million in new expenditures. But at least one analyst says the spending creates risks and could be poorly timed.<\/p>\n

\"Penn
Penn Entertainment’s Hollywood Casino in Columbus, Ohio. It’s one of the venues the operator is spending money on in a new round of enhancements. (Image: AP Photo<\/em>)<\/figcaption><\/figure>\n

In a note to clients, Roth Capital analyst Edward Engel said the current market environment is proving investors have a preference for lower leverage gaming companies. Prior to the Monday announcement, Penn\u2019s leverage was at the higher end of the group.<\/p>\n

Prior to today\u2019s announcement, Penn\u2019s leverage was on the higher-end of peers; however, its free cash flow (FCF) profile was strong given few growth CapEx initiatives,\u201d<\/strong> wrote Engel. \u201cWhile we believe Penn\u2019s $500M annual FCF and ~10% FCF yield had created a valuation floor for the stock, we fear this floor is now at risk as investors cut 2024 FCF forecasts.\u201d<\/strong><\/p><\/blockquote>\n

He rates Penn stock \u201cneutral,\u201d with a 12-month price target of $32. That implies upside of 10.3% from current\u00a0 levels.<\/p>\n

Penn\u2019s Big Spend<\/h2>\n

In Illinois, where it\u2019s the dominant casino operator, Penn is spending $360 million<\/a> to bring its Hollywood riverboat casino in Aurora ashore. Another $185 million is allocated to bring a riverboat gaming vessel ashore in Joliet.<\/p>\n

\n

The operator also told investors it will spend $206 million to double the size of the M Resort<\/a> in Henderson, Nevada. Following the recently completed sale of the Tropicana on the Strip, the M is Penn\u2019s lone venue of note in the Las Vegas Valley. Penn is also directing about $100 million to add a 180-room hotel at the Hollywood Columbus in Ohio.<\/p>\n<\/div>\n

Gaming and Leisure Properties (NASDAQ:GLPI) — Penn\u2019s primary landlord — is covering $575 million of the aforementioned costs. But that also means Penn\u2019s long-term rent obligations on the four properties are moving higher. Roth\u2019s Engel notes Penn\u2019s announcement signals the operator\u2019s confidence in underlying demand trends, but the spending is less justifiable if a recession arrives.<\/p>\n

\u201cWhile today\u2019s announcement affirms Penn\u2019s confidence in underlying conditions, these projects also put Penn in a less defensible position if gaming demand does weaken materially,\u201d <\/strong>added the analyst.<\/p>\n

Penn Needs to Manage Debt<\/h2>\n

Gaming companies with lower debt burdens are outperforming this year, and some with hefty obligation are moving to reduce those liabilities<\/a>. Those are signs that the investment community will likely keep a watchful eye on Penn\u2019s leverage as it moves forward with the aforementioned projects.<\/p>\n

For its part, Penn — the largest regional casino operator — can control its FCF-generating efforts. But it can\u2019t control the broader economy.<\/strong><\/p>\n

\u201cAssuming the economy and gaming demand holds steady, we model ~$500M FCF in 2023. As such, when combining Aurora\/GLPI’s $50M\/$225M financing, Penn should build enough incremental cash by YE2023 to fund the entire $850M budget, particularly with CapEx not ramping until 2024-2025,\u201d concludes Engel. \u201cHowever, this also assumes a steady macro environment, where investors are already pricing in a recession by 2H23.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"

On Monday, Penn Entertainment (NASDAQ:PENN) announced $850 million in new expenditures. But at least one analyst says the spending creates risks and could be poorly timed. In a note to clients, Roth Capital analyst Edward Engel said the current market environment is proving investors have a preference for lower leverage gaming companies. Prior to the […]<\/p>\n","protected":false},"author":46,"featured_media":236885,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[62,10],"tags":[83205],"acf":[],"yoast_head":"\nPenn Entertainment Spending Could Be Risky, Says Analyst<\/title>\n<meta name=\"description\" content=\"Penn Entertainment spending $850 million could increase leverage risk, says analyst.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.casino.org\/news\/penn-entertainment-spending-could-be-risky-says-analyst\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Penn Entertainment Spending Could Be Risky, Says Analyst\" \/>\n<meta property=\"og:description\" content=\"Penn Entertainment spending $850 million could increase leverage risk, says analyst.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.casino.org\/news\/penn-entertainment-spending-could-be-risky-says-analyst\/\" \/>\n<meta property=\"og:site_name\" content=\"Casino.org\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/Casino.OrgNews\" \/>\n<meta property=\"article:published_time\" content=\"2022-10-11T19:30:05+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2022-10-11T20:17:05+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.casino.org\/news\/wp-content\/uploads\/2022\/10\/HC-scaled.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"2560\" \/>\n\t<meta property=\"og:image:height\" content=\"1920\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Todd Shriber\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@etfgodfather\" \/>\n<meta name=\"twitter:site\" content=\"@Casino_Org\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Todd Shriber\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"3 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.casino.org\/news\/penn-entertainment-spending-could-be-risky-says-analyst\/\",\"url\":\"https:\/\/www.casino.org\/news\/penn-entertainment-spending-could-be-risky-says-analyst\/\",\"name\":\"Penn Entertainment Spending Could Be Risky, Says Analyst\",\"isPartOf\":{\"@id\":\"https:\/\/www.casino.org\/news\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\/\/www.casino.org\/news\/penn-entertainment-spending-could-be-risky-says-analyst\/#primaryimage\"},\"image\":{\"@id\":\"https:\/\/www.casino.org\/news\/penn-entertainment-spending-could-be-risky-says-analyst\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/www.casino.org\/news\/wp-content\/uploads\/2022\/10\/HC-scaled.jpg\",\"datePublished\":\"2022-10-11T19:30:05+00:00\",\"dateModified\":\"2022-10-11T20:17:05+00:00\",\"author\":{\"@id\":\"https:\/\/www.casino.org\/news\/#\/schema\/person\/f4cecf70a5032bc4e60eb73fc86d4a85\"},\"description\":\"Penn Entertainment spending $850 million could increase leverage risk, says analyst.\",\"breadcrumb\":{\"@id\":\"https:\/\/www.casino.org\/news\/penn-entertainment-spending-could-be-risky-says-analyst\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/www.casino.org\/news\/penn-entertainment-spending-could-be-risky-says-analyst\/\"]}]},{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/www.casino.org\/news\/penn-entertainment-spending-could-be-risky-says-analyst\/#primaryimage\",\"url\":\"https:\/\/www.casino.org\/news\/wp-content\/uploads\/2022\/10\/HC-scaled.jpg\",\"contentUrl\":\"https:\/\/www.casino.org\/news\/wp-content\/uploads\/2022\/10\/HC-scaled.jpg\",\"width\":2560,\"height\":1920,\"caption\":\"Penn Entertainment's Hollywood Casino in Columbus, Ohio. 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