Filed Under: ,
Tickers in this Article: PENN, WYNN, MGM, BYD
The business of gambling is certainly not recession proof. In fact, gambling establishments of many types are finding it very tough in this weak environment. However, I think that with the economy improving, Americans will be more likely to place bets, and I think that Penn National Gaming (Nasdaq:PENN) will benefit.

Why Penn Makes Sense
The Pennsylvania-based company known for its horse racing tracks and gaming machines has a very big presence in Iowa, Mississippi, Illinois and Louisiana. And longer term I think that those markets have exceptional growth potential thanks to increasing populations and gamblers looking for an alternative outside of the traditional Atlantic City and Las Vegas markets.

It's also important to note that the company is expected to turn out pretty strong earnings per share this year. The current estimate for 2009 and 2010, respectively, is $1.35 and $1.55. Given the current state of the economy, that's strong, and I think that in a few years that bottom line number could really take off as the domestic economy mounts what could be a formidable comeback.

Expected Earnings
Penn is due out with its third-quarter numbers later this month, and Wall Street is expecting the company to earn 35 cents. The company's expected profitability and wide range of holdings may make it an attractive acquisition prospect for players in the gaming space. I could see a player like MGM Mirage (NYSE:MGM), which has a footprint in Mississippi and is clearly a big name in gambling, buying up Penn at some point. I say "at some point" because of the losses that Wall Street expects MGM to generate (estimated 54 cent loss FY2010) and because the Las Vegas market still looks a bit sketchy.

Other Gambling Establishments Worth a Look
I have been a huge long-term proponent of Wynn Resorts (Nasdaq:WYNN) for some time. The company has an excellent management team, and it's expected to post profits this year and next year. I'm also keeping a close eye on Boyd Gaming (NYSE:BYD), although I'd like to see a pullback before jumping in. Boyd is expected to earn 44 cents this year and 55 cents next year. The company has a presence in Illinois, Louisiana and Mississippi. (For more on analyst expectations, be sure to read Analyst Forecasts Spell Disaster For Some Stocks.)

Bottom Line
I like companies that are engaged in the gambling business because I think it's a business that will stand the test of time. Near the top of my list is Penn National Gaming. I think that the company's expected profits for this year and its footprint in large gaming areas make it worth a closer look.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

comments powered by Disqus

Trading Center