Penn Entertainment Spending Could Be Ill-Timed, Says Analyst

On Monday, Penn Entertainment (NASDAQ:PENN) proclaimed $850 one thousand thousand inwards young expenditures. But at least 1 psychoanalyst says the disbursement creates risks and could follow poorly timed.

In a take down to clients, Roth Capital analyst Edward V Engel said the stream marketplace environs is proving investors have a druthers for depress leverage gaming companies. Prior to the Monday announcement, Penn’s purchase was at the higher stop of the group.

Prior to today’s announcement, Penn’s leverage was on the higher-end of peers; however, its free cash rate of flow (FCF) profile was strong granted few development CapEx initiatives,” wrote Engel. “While we trust Penn’s $500M annual FCF and ~10% FCF yield had created a valuation base for the stock, we dread this storey is now at risk of infection as investors cut 2024 FCF forecasts.”

He rates Penn stockpile “neutral,” with a 12-month toll butt of $32. That implies upside of 10.3% from current  levels.

Penn’s Big Spend

In Illinois, where it’s the dominant cassino operator, William Penn is disbursement $360 million to bring its Hollywood riverboat cassino inwards Aurora ashore. Another $185 billion is allocated to fetch a riverboat gaming vessel ashore in Joliet.

The operator also told investors it will pass $206 gazillion to stunt woman the sizing of the M Resort inward Henderson, Nevada. Following the lately completed sales agreement of the Tropicana on the Strip, the m is Penn’s lone locale of note of hand in the Las Vegas Valley. Penn is also guiding nigh $100 billion to supply a 180-room hotel at the Hollywood capital of Ohio inward Ohio.

Gaming and Leisure Properties (NASDAQ:GLPI) — Penn’s primary election landlord — is natural covering $575 trillion of the aforementioned costs. But that also agency Penn’s long-term lease obligations on the 4 properties are moving higher. Roth’s Engel notes Penn’s declaration signals the operator’s trust inward underlying demand trends, but the disbursal is less justifiable if a recession arrives.

“While today’s proclamation affirms Penn’s trust in underlying conditions, these projects also pose Penn in a to a lesser extent defensible berth if gaming exact does weaken materially,” added the analyst.

Penn Needs to Manage Debt

Gaming companies with lour debt burdens are outperforming this year, and some with hefty obligation are moving to cut those liabilities. Those are signs that the investiture biotic community testament potential donjon a watchful eye on Penn’s leverage as it moves forrard with the aforementioned projects.

For its part, Penn — the largest regional cassino manipulator — put up verify its FCF-generating efforts. But it can’t command the broader economy.

“Assuming the economy and gaming exact holds steady, we simulation ~$500M FCF in 2023. As such, when combining Aurora/GLPI’s $50M/$225M financing, William Penn should establish sufficiency incremental immediate payment past YE2023 to monetary fund the intact $850M budget, specially with CapEx non ramping until 2024-2025,” concludes Engel. “However, this also assumes a calm macro environment, where investors are already pricing inwards a ceding back by 2H23.”