Wall Street gaming analysts descended on the June 24 debut of the new, $360 million Hollywood Aurora casino in Illinois. The Penn Entertainment-run property held an investor tour the following day.
Truist Securities analyst Barry Jonas observed that, following the opening of Hollywood Columbus’s $100 million hotel, Hollywood Aurora was the last of Penn’s recent cycle of capex projects to hit the market. Penn told him it projected a 15 percent return on investment from Hollywood Aurora, which would translate to $54 million in annual cash flow.
Penn stock was trading at $20.38 per share at the time of the Aurora opening. Jonas raised his price target to $25 apiece and kept a Buy rating on the stock.
According to Jonas, Hollywood Aurora’s new location — having exited an old riverboat that was its old home — is exponentially more favorable. It sits next to an outlet mall, raising adjacent foot traffic from 5,000 people per day to 100,000 daily.
Although Penn’s nearby Hollywood Joliet has been considerably more lucrative, 1.6 times so, than its predecessor riverboat, Jonas predicted an even faster ramp-up for Hollywood Aurora. He enumerated Aurora’s new gambling inventory as 1,000-plus slot machines, roughly 50 table games, a baccarat room, and a sportsbook. Unlike new Hollywood Joliet, the Aurora casino also offers a hotel with 226 rooms.
Turning to Joliet, Jonas chronicled, “The property could likely see another leg of growth ahead of it, given the mixed-use development surrounding the property is still in its nascency. While the property is ramping nicely, management expects Joliet to have a longer path to maturity than Aurora, as nearby infrastructure continues to develop.”
One of the factors accelerating Hollywood Aurora, according to Deutsche Bank analyst Steven Pizzella, is that its new location places Penn closer to the affluent Naperville area. “Reports of opening night are that it was very busy, with operations running smooth, and despite our tour being on a Thursday morning, casino foot traffic was solid the whole time we were there,” Pizzella observed.
Aesthetically speaking, Pizzella professed himself impressed with Hollywood Aurora. He likened it to “some of the nicer regional casinos.”
Penn executives told Pizzella that the adjacent outlet mall was favored by Asian clientele looking for luxury goods. Consequently, Penn tailored its Aurora casino to cater to Asian appetites. However, execs said they weren’t expecting the 70 percent revenue explosion seen in Joliet.
Conversely, J.P. Morgan analyst Daniel Politzer found, “Management is confident in Aurora achieving strong returns over time.” Indeed, Penn was characterized as upbeat on its prospects through 2026 and into the next year.
Politzer described the new Aurora casino as “fairly busy.” He found it a slightly larger analogue to Hollywood Joliet. He felt the Joliet learning curve could be extrapolated to Aurora, all of whose amenities were ready on opening day, boding well for a fast ramp-up. He also opined that the lessons of Chicagoland could be exported to potential Penn expansion at Hollywood Toledo and in Louisiana and Mississippi.
“With limited quality hotel product in Aurora, management is optimistic that the outlets could drive casino traffic,” Politzer continued. He likened the new rooms to ones recently added in Columbus and at M Resort in Las Vegas.
As Penn shares traded well above his $16 per share price target, Jefferies Equity Research analyst David Katz stood by his Hold rating on the stock. Even so, he said he came away from his Aurora and Joliet tours “with a positive perspective on the current and future productivity of internal investments. We believe this is the right strategy for regional gaming operators generally.”
Whereas other analysts pegged foot traffic at Chicago Premium Outlets Aurora at 8.5 million souls annually, Katz believed the figure was closer to six million. Still, he felt the proximity to the mall was favorable.
Returning to his main theme, Katz reaffirmed faith in Penn’s capex-oriented strategy. “We generally view the strategy favorably from the perspective that regional gaming has become increasingly competitive from incremental licenses issued, alternative HRMs, route operations, unregulated skill games, sweepstakes and igaming, despite sustained demand levels, and operators are best served by selectively upgrading its offerings and value proposition. This has demonstrated success among peers and impact for those who have not upgraded.”
Katz also was of the opinion that doubling down on brick-and-more casinos was a more natural stratagem for Penn than were its previous investments in Barstool Sports, ESPN Bet and theScore. He said prospects for Penn were “mixed, given its capital structure but improving execution and growth visibility.”
Pizzella took the occasion of the Aurora opening to enlarge upon Penn’s grander plans. He was of the view that adding hotel rooms in Columbus and Las Vegas would reinforce two already-potent properties.
In particular, he thought the 202-room Hollywood Columbus hotel would make its casino a destination property, with “performance thus far is going as expected,” according to execs. M Resort’s new tower was running at 90 percent occupancy and “continues to capture previously unmet demand.”
Looking past Aurora, Pizzella also opined on upcoming Ameristar Council Bluffs. It was felt by Penn that it would perform better if rebranded as a Hollywood Casino. Pizzeria noted, “While somewhat defensive in nature, given the competition the asset has faced from Nebraska property openings, we view the move favorably, much like we view the continued focus on the core business favorably.”
Penn’s expectation is to spend $180 million to $200 million in Council Bluffs over a two-year period at maximum. “We continue to note,” Pizzella penned, “that historically, land-based moves have benefitted from both revenue uplifts and cost efficiencies, and with the existing facility being a three-level boat, we expect more of the same from this move.”
