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Should Investors Place Their Bets on Penn National Gaming?

Penn National Gaming (PENN) barreled through the pandemic despite burdens placed on its industry, but is its stock a Buy or a Sell?

Penn National Gaming (PENN) is a Wyomissing, Pennsylvania-headquartered operator of gaming and racing facilities and video gaming terminal operations at 41 facilities spread across 19 states. The company’s roots date back to 1969 and grew over the years through a skein of acquisitions of thoroughbred race tracks and casino developments. Last January, it acquired a 36% ownership stake in Barstool Sports, a digital sports media company, which furthered its presence to gaming enthusiasts.

This summer PENN launched the Barstool Sportsbook, a sports betting app. Although online sports betting was legalized by a U.S. Supreme Court ruling in 2018, the majority of states have been slow in creating the structure to support localized activity. The Barstool Sportsbook had its debut in Pennsylvania in September, followed by Michigan in October. The company expects to expand to 12 states by the end of 2021.

Furthermore, the company operates an interactive gaming division through its Penn Interactive Ventures LLC subsidiary. To date, its operations are limited to a iCasino in Pennsylvania and online sports betting operated through strategic partnerships in Indiana, Pennsylvania and West Virginia. 

Here’s how our proprietary POWR Ratings system evaluates PENN:

Trade Grade: A

Today, Penn broke it’s previous 52-week high of $79.74, which is far removed from its $3.75 52-week low. The early months of the coronavirus pandemic were rocky for PENN, as public health edicts closed casinos and race tracks while the postponement of professional sports put online betting on hold. However, the stock began to gain steam in August as many professional sports leagues began to resume play (albeit without in-person audiences) and casinos started to reopen at limited capacity play.

PENN’s stock slid by 25.7% in October, due primarily to its Q3 earnings of $1.13 billion, a 16.6% year-over-year slump from $1.35 billion in Q3 2019. But the stock’s vibrancy was on display as shares began to recover through November, quickly erasing concerns of an express ride to the bargain basement. On Dec. 8, PENN hit a midday trading record by skyrocketing up to 8.8%, which brought its market value above the $12 billion level of the first time in its history. 

Buy & Hold Grade: A

The stock’s proximity to its 52-week high, which is a key factor that our Buy & Hold Grade considers, is fueling this top-mark grade. For its Q3 earnings, PENN recorded $1.12 billion in revenue and an Adjusted EBITDAR of $452.6 million – no mean feat, considering the financial challenges that included the late-quarter reopening of its Tropicana Las Vegas, the damage created by Hurricane Laura on its L’Auberge Lake Charles property in Louisiana and the continued temporary closure of its Zia Park in New Mexico. 

Jay Snowden, president and CEO, observed that the company’s Q3 results came “despite the continuation of social distancing and capacity constraints at all of our reopened properties.” He predicted PENN “can close out the year with positive momentum.”

Peer Grade: A

PENN is currently ranked #2 out of 22 stocks in the Entertainment – Casinos/Gambling category, with only Caesars Entertainment Corporation (CZR) ranked higher. But PENN’s stock is trading slightly higher than CZR’s, and a switch in rankings would not come as a surprise. 

Industry Rank: C

The Entertainment – Casinos/Gambling industry is ranked #69 out of the 123 industries. While pandemic-era limitations may have temporarily diluted the enthusiasm that some investors have for this category, the average market cap-weighted POWR Rating for stocks in this industry is “B” (Buy). 

Overall POWR Rating: A

PENN is rated a “Strong Buy” for doing everything correctly, with an extra dash of vigor to keep it ahead of its competition.

Bottom Line

The development of a coronavirus vaccine is driving optimism that the pandemic’s expiration date is coming sooner than later, which will certainly be welcome for PENN’s industry and its reliance on in-person participation at casinos and race tracks. Furthermore, as more states solidify their online sports betting structures, PENN is an excellent position to strengthen its dominant role within its industry. Ultimately, this is the case of a company in the right place at the right time and doing all of the right things.

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PENN shares were trading at $79.45 per share on Wednesday morning, up $0.68 (+0.86%). Year-to-date, PENN has gained 210.84%, versus a 16.45% rise in the benchmark S&P 500 index during the same period.

About the Author: Phil Hall

Phil is an experienced financial journalist responsible for generating original content on the weekly Fairfield County Business Journal and Westchester County Business Journal, plus their respective daily online news sites, podcasts and video interview series.  He is the winner of 2018, 2019 and 2020 Connecticut Press Club Awards and 2019 and 2020 Connecticut Society of Professional Journalists Award for editorial output.


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