Penn National Could Be High Beta Redemption Story, Says JPMorgan

Posted on: December 30, 2021, 12:44h. 

Last updated on: December 30, 2021, 01:24h.

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

Penn National Gaming (NASDAQ:PENN) stock is languishing through a forgettable 2021. With just one trading day left in the year, the shares are off 43.19 percent year-to-date, and reside almost 64 percent below the 52-week high. But some market observers believe 2022 redemption is possible.

Penn stock
Penn National’s Hollywood Casino in Pennsylvania. JPMorgan says the stock is a high beta rebound candidate. (Image: Penn Live)

The regional gaming name appears on JPMorgan’s recently unveiled list of high beta momentum stocks that were punished this year that could rebound in 2022. Beta gauges a security’s volatility relative to the broader market. In simple terms, a high beta stock like Penn is likely to overshoot market moves in either direction, and when its momentum wanes, selling pressure can be severe.

That’s been the case for Penn stock, as it’s shed nearly a third of its value over just the past 90 days. But there could be reasons to believe it will bounce back in 2022.

On the Secular Growth side various High Beta segments (such as payments, ecommerce, gaming, cybersecurity, biotech) have already seen significant multiple derating (i.e., -30% to -70%), yet fundamentals for many of these themes remain intact with continued strong secular growth and large addressable market sizes,” says Dubravko Lakos-Bujas, JPMorgan chief U.S. equity strategist, in a note to clients.

While Penn is mired in a lengthy slump, it still has support among sell-side analysts. Some market participants believe the bloodletting in the shares make the name too cheap to ignore.

Penn Rebound Ingredients

Owing to its Barstool Sports  book, the company is the largest regional casino operator — a trait some market participants may have lost sight of in the fervor surrounding online casinos and sportsbooks. Not only are regional casinos expanding margins at a healthy clip, Penn no longer has exposure to the volatility of the Las Vegas Strip. That could be a plus if the coronavirus pandemic pinches gaming operators in 2022.

Still, Penn has some work to do to convince investors, many of whom ditched High Beta names for low volatility equities, to revisit the stock.

“Investors have shed High Beta stocks precipitously and are back to paying record premium for Low Vol stocks,” adds Lakos-Bujas.

Penn is the only gaming name on the JPMorgan list.

Act Quick, Says Bank

Momentum can change on a dime, and to that end, stocks on the JPMorgan list, including Penn, could reverse for the better as soon as January.

“Historical analysis (30+ years) shows that the largest outperformance of High Beta stocks tends to be in January (i.e., tax-loss harvesting, investor bottom fishing, etc.),” notes Lakos-Bujas. “We expect the upcoming ‘January effect’ to be even more pronounced this time around, given extreme positioning and sentiment, with a potential for a large High Beta squeeze.”

From a technical perspective, if Penn stock can run 11 percent to its 50-day moving average, that could induce further buying.