Penn National Gaming, Inc. PENN is poised to benefit from increased focus on strategic partnerships, sport betting and iGaming, acquisitions and margin-improvement initiatives. However, dismal traffic due to coronavirus outbreak remains a concern.
Let us delve deeper into factors highlighting why investors should hold on to the stock for the time being.
Factors Driving Growth
Being a leading gaming company in the United States, Penn National is known for its consistent business strategies and strong brand recognition. The company has expanded presence through various acquisitions and divestitures. Even then, Penn National is still continuing to expand and leverage its brand power.
Notably, Penn National is known for its acquisition strategies that help the company expand its presence and improve revenue yields. During first-quarter 2020, the company reached an agreement to acquire 36% interest in Barstool Sports for nearly $163 million. Per the agreement, Penn National will be Barstool Sports’ (a leading digital sports media company) gaming partner. The company will launch Barstool Sportsbooks across the United Sates in the coming quarters and mobile sports betting app Barstool Sportsbook.
Despite the coronavirus pandemic, the company announced that it will continue to invest in projects, which will generate EBITDA in the short term. The company remains confident about its long-term growth that will be supported by differentiated omni-channel approach.
Moreover, with the legalization of sports betting outside Nevada, many companies have been benefiting from the same. To this end Penn National announced strategic partnerships with DraftKings, PointsBet, theScore and The Stars Group to maximize sport betting and iGaming across 19 states. During first-quarter 2020, the company opened retail sports book at the Meadows Casino in Western Pennsylvania. Moreover, one of its skin partners recently launched online sports betting operations in West Virginia and Indiana.
Apart from this, Penn National engaged third-party consultants to help the company validate and quantify a set of strategic initiatives that are expected to improve its industry-leading property level operating margins in the coming years. This effort encompasses both revenue and cost-saving initiatives that will reap recurring benefits over the years. So far this year, shares of Penn National have gained 16.1%, against the industry’s decline of 26.6%
Penn National financials in 2020 are likely to be adversely impacted by the outbreak of coronavirus. Even though the company has resumed operations at majority of its gaming properties, dismal traffic is expected due to the social distancing protocols. Owing to the uncertainty of the crisis, the company has not only withdrawn 2020 guidance but has also suspended quarterly dividend payouts.
To mitigate the financial impact, the company has also taken certain actions to reduce operating expenses. Moreover, the CEO and the board of directors have agreed to a pay cut for 2020. The board has also decided to temporarily furlough part of its corporate workforce. Moreover, to protect its business from this crisis, Penn National entered into an agreement with Gaming and Leisure Properties to divest its Tropicana Las Vegas property and land in Morgantown, PA. The transaction was valued at $337.5 million in rent credits.
Penn National, which shares space with Caesars Entertainment Corporation CZR, MGM Resorts International MGM and Red Rock Resorts, Inc. RRR in the Zacks Gaming industry, has a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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