Despite the fact that the price of the
shares has more than doubled in the past six months, analysts at Bear Stearns
have reaffirmed their “buy” rating on Penn National Gaming Inc. (PENN).
In announcing the results of a recent
equity research report, Jason Ader, chief gaming analyst, and his associates
said, “we initiated coverage of Penn National on Feb. 20 at the previous
day’s closing price of $32.62 and with a $38 asset value. With its recent
acquisitions of Boomtown Biloxi, Casino Magic Bay St. Louis, and Casino Rouge,
we believe Penn National has amassed a strong portfolio of regional properties
anchored by its Charles Town Entertainment Complex.”
They added that they believe the
company has “substantial growth opportunities” at its “racino” Charles
Town Racetrack in West Virginia and that the growth would continue to drive
increased EBITDA (earnings before interest, taxes, interest, taxes, depreciation
and amortization), a common measure of cash flow.
Among the factors that have contributed
to the additional growth were the increase in the maximum betting limit from $2
to $5 in August, 2001; the addition of a garage and other amenities at the
property, and the addition of more slot machines.
“Given our long-term positive outlook
for Penn National,” the analysts said, “the company’s continued earnings
momentum and accelerating free cash flow, as well as the potential for
significant upside from our estimates, we believe the shares warrant a “buy”
rating and should trade at 6.75-times our 2003 EBITDA estimate.”
Recently, the company received approval
to add 1,500 slot machines to its Charles Town facility.