A Good Bet on Regional Gaming

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The regional gaming market doesn't get a lot of headlines these days. Troubles in Las Vegas and growth in Macau are much more exciting topics of conversation than regional operators are, but that doesn't mean there aren't opportunities in these areas. As the economy slowly recovers, casinos around the country are slowly coming back.

Penn National (NAS: PENN) reported earnings yesterday, with revenue in the third quarter rising 11.4% to $710.9 million and adjusted EBITDA climbing 27.2% to $206.1 million. Earnings per share reached $0.66, easily outpacing both the company's $0.53-per-share guidance and the $0.55 analysts were expecting.

Results were helped by a full quarter of M Resort, which the company purchased in Las Vegas.

Mr. Market spits Penn out
You may have noticed that shares took a nosedive yesterday and have continued to fall today. As fellow Fool Anders Bylund pointed out yesterday, shares fell during the conference call, when management dismissed the possibility of paying a dividend. The market saw this as bad news and frankly didn't like the way management answered the question.

I will point out that Penn National executives are much more straightforward than most executives and have a more shown that they're willing to act with the long term in mind instead of making flashy statements. This has worked out well for shareholders, as Penn has outperformed Boyd Gaming (NYS: BYD) , Ameristar Casinos (NAS: ASCA) , Pinnacle Entertainment (NYS: PNK) , and Isle of Capri Casinos (NAS: ISLE) over the past five and 10 years. In this case, however, the market didn't like it.

A Foolish thumbs-up
Even though the market gave Penn a thumbs-down, I like the way management snubs its nose at analysts every once in a while. If the discussion on the conference call was any indication, it's also likely that management is taking the stock drop as an opportunity to buy shares. You could take management's comments as a bad sign as the market does, or you could see it as a sign that management is focusing on creating value and doesn't care what an analyst from Goldman Sachs has to say. I see the latter.

Foolish bottom line
Penn isn't as exciting as the incredible growth Las Vegas Sands (NYS: LVS) and Melco Crown (NAS: MPEL) provide in Macau, but sometimes slow and steady is a better way to play. Penn is still my top regional gaming pick, and the drop in price only makes shares more attractive.

To back up my words, I'm giving Penn National a green thumb on My CAPS page. Follow Penn and the rest of my picks.

Interested in reading more about Penn National? Add it toMy Watchlist, and My Watchlist will find all of our Foolish analysis on this stock.

At the time this article was published Fool contributorTravis Hoiumhas no position in any company mentioned. You can follow Travis on Twitter at@FlushDrawFool, check out hispersonal stock holdings, or follow his CAPS picks atTMFFlushDraw.Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.z

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