Penn National Pummeled Despite Lifting Revenue Outlook

Posted on: May 5, 2022, 02:15h. 

Last updated on: May 5, 2022, 02:34h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

On a brutal day for broader equity benchmarks, casino stocks weren’t immune from intense selling pressure, and Penn National Gaming (NASDAQ:PENN) was one of the victims.

casino stock
Penn National’s Hollywood Casino in Pennsylvania. The casino stock slumped today, but there is some good news. (Image: TheStreet)

On volume that was more than 25% above the daily average, shares of the largest regional casino operator sank 5.6% today, extending the casino stock’s one month decline to 12.45%. The Nasdaq — Penn’s listing venue — experienced its worst one-day decline since September 2020, sliding 5%.

Penn’s problematic Thursday, which extends the stock’s 12-month decline to 57.63%, arrived despite the gaming company boosting its 2022 revenue outlook. In revealing first-quarter results earlier today, the Pennsylvania-based casino operator said it expects 2022 sales of $6.15 billion to $6.55 billion, up from prior guidance of $6.07 billion to $6.39 billion. The consensus estimate was $6.31 billion.

The increased guidance reflects some momentum for Penn’s often scrutinized online gaming portfolio, including Barstool Sportsbook.

We are also driving momentum at our Interactive Segment with ongoing sports betting and iCasino growth in the U.S., and the successful launch of mobile sports betting and iCasino in Ontario on April 4th on theScore’s proprietary player account management system (‘PAM’) and bonusing engine,” said Penn CEO Jay Snowden in a statement.

Single-game sports wagering and iGaming debuted in Ontario, Canada last month, which is relevant to Penn investors because of its ownership of theScore Bet.

Weak Macro Environment Obfuscates Silver Linings

Like other casino stocks, Penn is slumping due in large part to macroeconomic headwinds, including rising interest rates, soaring inflation, and speculation about a recession.

Among others, those factors are conspiring to punish gaming equities while, in some cases, forcing investors to miss some encouraging news. Specific to Penn, the operator reported first-quarter earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR) and revenue that topped Wall Street estimates. Additionally, margins were impressive in the first three months of 2022.

“We view 1Q22 results as a core beat alongside impressive property margins, where 1Q is typically seasonally weaker than 2Q and 3Q. While PENN’s decision to maintain margin guidance may be related to conservatism or mix (interactive vs. land-based), investors may focus on 2H inflationary pressures,” said Roth Capital analyst Edward Engel in a note to clients today.

He has a “neutral” rating on Penn shares with a $46 price target.

‘More Positives Than Negatives’

Seeing the casino stock forest through the trees of macroeconomic woes isn’t easy. But in the case of Penn National, some analysts see more good than bad in the operator’s first-quarter results.

“PENN’s 1Q22 earnings report clearly showed us more positives versus negatives,” writes Stifel analyst Steven Wieczynski in a note. “Not even sure we would call this a negative. But it might be viewed that way to some, as there was margin erosion for the second straight quarter. However, we would rather look at property level EBITDA margins, which came in at 37.1%.”

He has a “buy” rating on Penn with a $61 price target. In the first three months of this year, Penn repurchased $175 million of its own shares, confirming management sees value in its downtrodden stock. The company has $575 million remaining on a previously announced buyback plan.