Penn National Stock Margin Story Not Fully Appreciated, Says Analyst

Posted on: June 15, 2021, 10:54h.

Last updated on: June 15, 2021, 06:21h.

Todd Shriber @etfgodfather Read More

Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Off 44 percent from its March high, Penn National Gaming (NASDAQ:PENN) stock may still hold cards for upside, and there are some elements to the story that aren’t fully appreciated, according to one Wall Street analyst.

In a note to clients, Stifel analyst Steven Wieczynski reiterates a “buy” rating on the regional casino operator, with a price target of $108. That implies upside of about 33 percent from the June 14 close. The previously scorching hot gaming equity hasn’t closed above $100 since April. Over the near term, the point to ponder with Penn and other regional gaming names is how sustainable recent visitation surges will prove to be.

Volumes have remained robust since March, with no signs of faltering yet,” said Wieczynski. “The question remains how long can this last, as competitive entertainment re-opens and stimulus/savings unwinds.”

The analyst says there’s remaining traffic upside for the Ameristar operator as older gamblers, including those in the 65+ demographic, become more comfortable with revisiting gaming venues. He adds that even if there’s a tapering of visitation over time as visitation normalizes, Penn’s baseline for visitation should exceed the pre-pandemic levels seen in 2019.

Penn Stock Has Advantages

With the stock down almost 41 percent over just the past 90 days, it’d be easy to dismiss Penn. But that could be a mistake, as the company has advantages over competing operators.

For example, its portfolio is deep in number, including 42 casinos, and geography, covering 20 states. Additionally, it’s diverse, as none of Penn’s individual casinos account for more than 15 percent of overall revenue. That tethers the operator to the more even recovery by regional casinos, while avoiding some of the bumps associated with rebounds in destination markets. With the pending closure of the Tropicana on the Las Vegas Strip, Penn will operate just two venues in Southern Nevada, both of which are more tied to locals and tourists.

“We thinks this helps de-risk concerns on select regions with heightened restrictions, or other COVID-19 related drivers of underperformance,” said Wieczynski.

The analyst adds Penn management’s ability to maintain lofty margins is a positive part of the equity thesis.

“On the cost side, we think investors remain wary of assuming the market sustains more rational marketing/promotional behavior,” he adds. “However, having covered this company for years, and witnessed PENN’s unrelenting commitment to driving industry-leading tax-adjusted margins, we have confidence in management’s ability to run this business at enhanced margins.”

Penn Has Online Perks, Too

While iGaming and sports wagering equities, Penn stock included, have come under substantial pressure in recent months, Wieczynski believes the Pennsylvania-based operator has advantages over rivals, particularly on costs and brand loyalty.

“Specifically, we believe many of PENN’s peers continue to compete largely on marketing, which is costly and may not create “stickiness” or any real brand loyalty,” said the analyst. “PENN is differentiated here in their strategy, relying more on Barstool-integrated and player-targeted promotions/bonuses.

Adding up brick-and-mortar assets, revenue generated on non-primary skins, and a robust player database, and Wieczynski says Penn stock is “very much undervalued following the recent pullback.”