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Casino Stocks: 2 to Hold, 2 to Fold

Macau remains the gaming industry’s hottest hand

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Fold: Penn National Gaming Inc. (PENN)

Penn National GamingPenn National Gaming (PENN) operates 26 facilities with 31,100 gaming machines, 800 table games, and 2,900 hotel rooms through its Midwest, East/West and Southern Plains segments in 17 jurisdictions.

The company faces headwinds from the U.S. market saturation trend Spectrum Gaming is seeing. Last month, PENN reported a loss of $11.40 per share — far below the 13-cent per share loss analysts were expecting for the fourth quarter. Revenue was down more than 13% year-over-year.

PENN stock has a market cap of nearly $954 million and a PEG ratio of 2.7, a sign that it is overvalued. And shares are down 10% year-to-date. However, there are a few positives for PENN stock: Last month, Massachusetts awarded PENN the state’s first expanded gambling license, which gives it an advantage over other casino stocks. The company is hoping to open a slots business next spring at the Plainridge harness-racing track near Boston, although there is a move afoot to repeal the state’s gambling law.

But if you’re looking for casino stocks to buy, the better play could be Gaming and Leisure Properties (GLPI), a real estate investment trust PENN formed when it spun off 21 of its racetracks and casinos last year. Thanks to the more favorable REIT structure (it must distribute 90% of its taxable income to investors), GLPI boasts a current dividend yield of 5.6%.

As of this writing, Susan J. Aluise did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media, http://investorplace.com/2014/03/casino-stocks-2-hold-2-fold/.

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