Morgan Stanley Believes West Virginia Bet Repeal will Benefit Penn National Gaming

In a report published earlier today, Morgan Stanley discussed its thoughts on how the recent passage of Senate Bill 550, which repeals the $5 bet limit in West Virginia casinos will impact Penn National Gaming's PENN performance. The law, which will go into effect in July, is expected to boost PENN's EBITDA by $10-15 million and increase equity value by about $1 per share. Morgan Stanley estimates that PENN's Charles Town property should be able to realize 5% increase in gaming revenue, noting that a similar bill in Colorado that pushed limits up from $5 to $100 helped drive an increase in revenue by about 6% between 3Q2009 and 3Q2010. Furthermore, Morgan Stanley believes that suppliers should benefit as well, noting that “the bill also allocates up to $10m of lottery funds annually for 10 years that casino operators can use to purchase slots and make other casino upgrades,” potentially leading up to $20m of annual spending in West Virginia alone. Finally, Morgan Stanley summarizes its investment thesis with three key points: PENN has a “strong, underappreciated development pipeline”, the “mild recovery in domestic gaming revenues”, and its current valuation. Morgan Stanley currently has an “Overweight” rating for PENN. PENN is trading at $38.62.