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Penn National Gaming (PENN) Down 31.5% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

A month has gone by since the last earnings report for Penn National Gaming (PENN). Shares have lost about 31.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Penn National Gaming due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Penn National Q4 Earnings & Revenues Miss Estimates

Penn National Gaming, Inc. reported fourth-quarter 2019 results, with earnings and revenues missing the respective Zacks Consensus Estimate. Notably, the top line missed the consensus mark in three of the trailing four quarters.

Adjusted loss came in at 80 cents per share, lagging the Zacks Consensus Estimate of earnings per share (EPS) of 37 cents. In the prior-year quarter, the company had reported adjusted loss of 37 cents. Net revenues totaled $1,341.2 million, which missed the consensus mark of $1,347 million. Nevertheless, the figure surged 16.1% from the year-ago quarter figure.

The Northeast segment reported revenues of $621.3 million, up 18.1% year over year. The West, Midwest and South segments’ revenues came in at $158.1 million, $279.2 million and $268.2 million, up 7.8%, 5.5% and 28.9%, respectively, year over year. Meanwhile, the Other segment reported revenues of $15.6 million, up 57.5% year over year.

Let us take a closer look at the numbers

Inside the Headlines

Penn National’s income from operations declined to $11.3 million in the fourth quarter compared with $124.4 million in the prior-year quarter. Adjusted EBITDAR increased 23.3% from the year-ago quarter’s figure to $399.4 million. Moreover, adjusted EBITDAR margin expanded 180 basis points to 29.8%.

Meanwhile, the traditional net debt ratio was 2.4x, and net leverage on a lease-adjusted basis was 5.5x.

Other Financial Information

At the end of the fourth quarter, cash and cash equivalents declined to $437.4 million compared with $479.6 million at the end of Dec 31, 2018. Further, the bank debt as of Dec 31, 2019, were $1,896.5 million, down from $1,907.9 million at the end of Dec 31, 2018.

2019 Highlights

In 2019, total revenues amounted to $5,301.4 million, up 47.8% year over year.

Adjusted EPS for the year ended Dec 31, 2019 was reported at 37 cents compared with 93 cents in 2018.

Total Adjusted EBITDAR was reported at $1,605.2 million compared with $1043.2 million in 2018.

Adjusted EBITDAR margin inclined 120 basis points to 30.3%, compared with 29.1% reported a year ago.

2020 Guidance

For the full year, adjusted EBITDAR is expected in the range of $1.67-$1.70 billion. Free cash flow is expected between $405 million to $430 million.

Total maintenance capital expenditures are expected at $199 million. Cash interest on traditional debt is expected at $105 million, while cash taxes are expected to amount $60 million.

However, the above guidance does not include any impact related to the Barstool transaction.

Other Developments

Penn National had entered into an agreement to acquire 36% stake in Barstool Sports, becoming its exclusive gaming partner. The investment is in sync with the company’s strategy to evolve as a best-in-class omni-channel provider of retail as well as online gaming and sports betting entertainment. Notably, the company is optimistic regarding the potential benefits of the investment in Barstool Sports.

Meanwhile, the company’s development projects in Pennsylvania, which include the $120-million Hollywood Casino York and the $111-million Hollywood Casino Morgantown, are on track.

How Have Estimates Been Moving Since Then?

Estimates review followed an upward path over the past two months.

VGM Scores

At this time, Penn National Gaming has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Penn National Gaming has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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