Penn National shares surged 9 percent Thursday morning after the company revised its first quarter revenue and EBITDA guidance.
The regional gaming operator is now expecting $770-$771 million in EBITDA, a 1 percent jump from its initial $761 million estimate, and EBITDA of $222-$223 million – up 6 percent from initial guidance of $209 million.
The revision reflects both improved operating performance and economic conditions in key markets.
“Our year-to-date performance reflects strength across the portfolio and Penn National’s updated first quarter Adjusted EBITDA after master lease payments is pacing approximately 13% to 14% ahead of our prior expectations,” Timothy J. Wilcott, Penn’s president and chief executive officer.
“As we look to the balance of the year, our ongoing efforts to optimize operating efficiencies are enabling us to further improve margins which, combined with our strategy of growing our omni-channel platform of casino operations, retail gaming and social gaming assets, support our efforts to increase cash flows, reduce leverage and return capital to shareholders,” Wilcott continued.
After closing Wednesday at $15.39, Penn’s share price jumped to as high as $16.78 Thursday morning.
“We are not surprised to see PENN shares trading higher in response to affirmation 1Q17 trends to date are running ahead of management’s prior expectations. Although revenue guidance has been pushed slightly higher (+1%), margins appear to be the primary driver of the guidance revision,” wrote Steven Wieczynksi, an analyst with Stifel, noting that Penn’s new guidance implies an adjusted EBITDA margin of 28.9 percent, up from 27.5 percent.
Analysts pointed to an encouraging ramp-up at the Tropicana in Las Vegas and strong performances in Ohio and Massachusetts as driving the upward revision.
Also, cannibalization has been less than feared at Hollywood Casino in Charles Town, West Virginia as a result of MGM National Harbor’s opening in December 2016. The casino’s ability to offer smoking and its positioning far from Capital region traffic snares have helped it retain customers.
“In our view, the raise is related to 1) better than expected results at Charles Town, 2) reducing costs/operating expenses, 3) relative strength in Ohio, and 4) expectations of a strong March,” said Cameron McKnight, an analyst with Wells Fargo, in a note.
McKnight emphasized that Penn is well-positioned in a strong Las Vegas market and will receive an extra boost should other regional markets pick up steam this year.
“PENN is the pure play on a consumer recovery in 2017. In our view, expectations are extremely low, with no potential regional America recovery priced in, and potential for some negative catalysts to surprise on the upside,” he said.