• Penn is a solid performer in the regional space but fully valued in our view because some of its peers have a better forward upside.
• Barstool brings an alien culture to the Penn locals demo profile. Can it be transplanted?
• The Tropicana Las vegas fetched a fire sale price for Penn proof of a bad decision by prior managers.
• Looking for a helping hand in the market? Members of The House Edge get exclusive ideas and guidance to navigate any climate. Get started today »

Valuing companies during the current virus crisis by standard metrics is a dead-end game for investors. Any comparison between what a company produced in EBITDA or EPS for 2019 against 2020 reveals very little about the management’s performance relative to the challenges posed by the blackest of black swans, the Covid-19 virus. That’s why we need to look elsewhere in the active profile of a company’s strategic decision process for a better clue to whether its stock is trading at an attractive entry point, or whether it is overvalued or fully valued. Our case in point here: Penn National Gaming Inc. (NASDAQ:PENN), a good company experiencing bullish sentiment in price movement now. Our view: Penn is at best fully priced now and does not represent as good an entry point as do some of its regional competitors.

Data by YCharts

There’s no mystery in what casino managements, robbed by up to 95% of their normal revenue flows by the virus, have done to keep themselves whole through the crisis. They’ve established controllable daily cash burn levels for maintaining their properties on a zero revenue basis. They’ve conserved cash by postponing or eliminating dividends, capex programs, and they’ve furloughed workers. Overall, Investors can expect operators to emerge at the other side of the crisis, solvent, ready to rebuild volumes and re-establish historic earnings production. Only at that time can valuing regional casino stocks become a horse race we can again handicap using apples to apples comparatives based on re-virus earnings profiles.

Since the state-mandated closures have been lifted and sets of health protocols installed, revenues can be expected to slowly trickle back into gaming coffers. Daily cash burn should start to ebb by 4Q this year. The massive spoiler in this possible happy ending story of course is the ongoing threat of the feared second wave of virus contagion. Medical opinion is divided on the issue. Some experts see a second wave as inevitable, others are less certain.

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