Penn National Stock Oversold Condition Could Portend Rebound

Posted on: July 26, 2021, 09:53h. 

Last updated on: July 26, 2021, 02:24h.

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

Penn National Gaming (NASDAQ:PENN) stock is mired in a lengthy slump. The once-sizzling casino operator has shed half its value since March.

Penn Stock
The Barstool Sportsbook at the Greektown Casino in Detroit, seen above. Operator Penn National could rally, says a research firm. (Image: Reddit)

Now locked in a more than four-month slump, shares of the regional casino giant fit the bill as oversold. This is a technical condition that can give way to short-term rallies in afflicted stocks. In fact, one research firm points out Penn has a history of bouncing when it’s oversold.

The shares now sit around the $70 area, which represents half Penn National Gaming stock’s all-time highs and was a key inflection point back in fall 2020,” says Schaeffer’s Investment Research.

“As PENN’s 14-Day Relative Strength Index (RSI) drifts below 28 and into ‘oversold’ territory, a look back at similar readings in the past show good buying opportunities,” according to a statement by Schaffer’s.

Penn stock is off 18.57 percent year-to-date, good for one of the worst showings in the gaming industry. However, the name still has supporters on Wall Street, including some saying the sell-off is overdone. The consensus price target on the gaming equity is nearly $108, implying the shares would need to gain more than 50 percent from current levels to reach that forecast.

Potential Catalysts for Penn Stock

While plenty of analysts previously rushed to defend Penn, with some saying its margin expansion story isn’t fully appreciated, the name remains a source of division on the sell-side.

That could actually work in favor of investors, because, as Schaeffer’s points out, a fair amount of analysts are either bearish on the name or on the fence. If the shares can rebound, that could trigger a round of upgrades or price target revisions.

“Many analysts remain on the sidelines, and a shift toward upgrades and/or price-target hikes could provide tailwinds for Penn National Gaming stock. Of the 13 brokerages covering PENN, six maintain ‘hold’ or ‘strong sell’ ratings,” said Schaeffer’s.

Data indicate Penn is also a short squeeze candidate, meaning that if the shares perk up, bearish traders could be forced to cover positions, forcing the stock higher in the process.

“There is also room for a potential short squeeze on Penn National Gaming stock. Short interest tapered off in the most recent reporting period, yet the 13.25 million shares sold short accounts for nearly nine percent of PENN’s total available float,” adds Schaeffer’s.

Near-Term Outlook on Penn National

A prime avenue for near-term upside for Penn stock is the company’s second-quarter earnings report, scheduled for Aug. 5. Last month, the Ameristar operator raised revenue and adjusted earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR) forecasts. So there could be limited room for surprises unless the company materially guides higher on third-quarter or full-year results.

Although Penn’s land-based casinos are performing well and margins at those venues are impressive, investors are clamoring for more out of the online casinos and sports wagering businesses.

“Penn National Gaming has expanded rapidly into new areas with its expansion of Barstool Casinos. And consider for a moment that Florida, Arizona, and Connecticut all recently approved sports betting at the state level. This trend is likely to continue as more states pass gambling legislation, making PENN in pole position to capitalize on such macro tailwinds,” according to Schaeffer’s.