Penn National Plans $750M Buyback, Eyes Full Acquisition of Barstool Sports

Posted on: February 3, 2022, 10:21h. 

Last updated on: February 3, 2022, 01:47h.

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

Penn National Gaming (NASDAQ:PENN) is planning to repurchase up to $750 million worth of its badly ailing stock. It is also looking to acquire the 64 percent of Barstool Sports it doesn’t own sometime in early 2023.

Penn National
Penn National Gaming CEO Jay Snowden in a 2020 CNBC interview. The company beat Q4 revenue estimates and is planning a $750 million share buyback. (Image: CNBC)

The regional casino operator made those announcements earlier today in conjunction with its fourth-quarter earnings report. Penn National said it earned 26 cents a share on revenue of $1.57 billion in the last three months of 2021. Analysts expected earnings per share of 53 cents on sales of $1.51 billion.

The company’s revenue and earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR) for the period surpassed both 2020 and 2019 levels. In the wake of the coronavirus pandemic, gaming analysts are measuring operators’ 2021 results against those posted in 2019, which was a normalized climate for the industry.

For this year, the largest regional casino operator forecast net revenue range of $6.07 billion to $6.39 billion, and an adjusted EBITDAR range of $1.85 billion to $1.95 billion.

Barstool Provides Pleasant Surprises

Penn shares plunged 58.12 percent over the past year and are off 67.5 percent from the 52-week high due in large part to investors fretting about the economics of online sports betting.

However, it was the operator’s digital gaming unit, including Barstool Sportsbook, that provided some impressive fourth-quarter surprises. In breaking out its digital results for the first time, Penn said that business lost $6 million on revenue of $150 million in the October through December 2021 period, while analysts expected a loss of $20 million on sales of $114 million. For 2022, Penn’s digital operations are expected to lose $50 million, well-below prior guidance calling for a loss of $80 million.

Despite Digital’s ~4 state/province launches in 2022, management expects $50 million in digital losses vs. peers losing $100 million+. Management also expects profitability in 2023 vs peers expecting break-even/slight losses,” said Roth Capital analyst Edward Engel in a note to clients today.

On a related note, Penn CEO Jay Snowden said the company plans to fully acquire Barstool Sports in early 2023. That announcement comes as controversy continues swirling around Barstool founder David Portnoy and his sexual dalliances.

In January 2020, Penn paid $163 million for a 36 percent stake in Portnoy’s company, with rights to eventually own the sports media property outright for $450 million.

Buyback Puts ‘Floor’ Under Penn Stock

Penn concluded the fourth quarter with $1.9 billion in cash on hand and total liquidity of $2.5 billion. One analyst says the share repurchase program, which runs through January 2025, is a positive sign.

“The board’s $750 million share authorization should help put a floor in the stock. Given the recent weakness, we believe this is a great sign that at current levels, the company views their shares as massively undervalued,” said Stifel analyst Steven Wieczynski in a note to clients.

While share repurchases among S&P 500 companies hit a record last year, the gaming industry is participating in that trend in only a modest fashion. Penn’s buyback plan is ranking as one of the largest in the group since the start of 2021.