Penn National Gaming, Inc. (PENN)

akre

buy

Settlement monies coming in should help bottom line. It has been beaten up too much.

Chuck Akre of FBR Focus is an investor we admire and he's loaded up 16% of his fund with PENN. He mentioned the company to us back in early 2007 as one of his favorite stocks. It's been a tumultuous eighteen months for PENN, to be sure, first with the private equity deal falling through and then decreased consumer spending hitting the gambling sector hard. But the future looks a lot brighter for PENN than its current stock price would imply. It's to receive $1.45 billion in compensation for the PE deal and that gives the company a whole lotta options in a down market. Judging from the tone of the most recent earnings call, it sounds like management is just now getting back into the mindset of being a publicly-traded company. I guess they were convinced the buyout would go through, so it might take some time for this pick to realize its full value (probably around $30-$33 today), but as the song goes "time is on my side". And on CAPS, we have all the time in the world to let this one ride.

Todd (disclosure: owns FBR Focus)

Casino.

Creating a portfolio based on calling outperform on every alcohol, tobacco, pornography and gambling stock I can find.

depends on sale.

Great arbitrage play. Upside gain is significantly lower than the downside risk.

Deal or No Deal

gaming

It's hit rock bottom. PENN can only go up.

This stock is set for a buy out. Most think that the buy out won't go throuh but I believe it will creating a value for all that take advange of its current price.

sale on 06/17/08

Small Cap stock that has been beaten down a bit over the last few months. With the market where it is at, this stock should be good over the next couple of years. We will get out of this possible bear market and people will always want to gamble. Its human nature.

Arbitrage:

Penn National Gaming (PENN) to be acquired by Fortress Investment Group (FIG) - 61% profit - A true gamble of a company!

Phillip Durell of Motley Fool has an excellent write up in his newsletter.

Highlights: Options show 25% chance of deal closing.
Regulatory risk, no problem
Buyer's remorse, probably no problem
Financing risk, Deutsche Bank - no problem, Wachovia, might be a problem.
200M fee if FIG breaks up, not exactly a cheap date.

The most compelling story for me was that PENN is trading below pre-buy out price and it's a fairly priced standalone company at today's price. Worst case, I'd say is a 50% decline at which case I might become a buyer just as normal undervalued company. More than likely I think we'd see a 10-40% price decrease or so if the deal fell through, but longer term I think the value of the company would push the pricer higher than today's price and ultimately higher than the buyout price.

50% chance of 60% gain
10% chance of 0% gain
10% chance of 10% loss
15% chance of 25% loss
15% chance of 50% loss
Risk adjusted return of 18% in about 6 months.

Acquisition by FIG will likely close at $68+. If not, company is still well postioned for organic growth at existing locations, and further accretive acquisitions.

This stock has taken a beating over the last 10 months. It hit a peak of $63.29 on 6/19/07 when the announcement of that they would be bought out by Fortress Investment Group and Centerbridge Partners LP for $67.00 a share. Since then it has dropped as low as $39.00 a share on 03/17/2008. However, the share price has risen to almost $45.00 a share as of 04/02/2008.

Today the associated press reported the following:
"In a client note, Lehman Brothers analyst Felicia Hendrix said a lot has changed since Penn accepted the buyout offer in June 2007, with eroding credit markets, increased competition and slowing gaming revenue in some markets now weighing them.

However, the analyst said Penn's buyout "is one of the most target-friendly leveraged buyout contracts we have seen in the past two years while the debt commitment letter is also target friendly."

Hendrix said Penn's situation might be resolved near term, as its acquisition is set to close on June 15, which could give investors an "actionable opportunity." ".

Even if the buyout doesn't take place, Penn stands to get hundreds of millions of dollars if the deal falls through based on the terms of the agreement. To me this is a win win proposition.

Truly a heads I win, tails I don't lose proposition. Either the deal closes and one earns a 60%+ return over the next 3 months, or it doesn't and one is left owning a piece of a great business at an attractive price.

Has been doing well despite the economy