A month has gone by since the last earnings report for Penn National Gaming (PENN). Shares have added about 0.4% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Penn National Gaming due for a pullback? 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 drivers.
Penn National Q2 Earnings Top, Revenues Lag Estimates
Penn National Gaming reported mixed second-quarter 2019 results, wherein earnings surpassed the Zacks Consensus Estimate but revenues lagged the same. Notably, the top line missed the consensus mark in four of the trailing five quarters. Following the quarterly results, shares of the company declined 2.2% on Aug 1.
Adjusted earnings came in at 44 cents per share, surpassing the Zacks Consensus Estimate of 34 cents. Net revenues totaled $1,323.1 million, which lagged the consensus mark of $1,328 million but surged 60% from the year-ago quarter number.
The Northeast segment reported revenues of $599.1 million, up 28.8% year over year. At the West, Midwest and South segments revenues came in at a respective $164.3 million, $268.2 million and $282.2 million, up 63%, 42.5% and 350.6% year over year. Meanwhile, the Other segment reported revenues of $9.4 million, down 6.9% year over year.
Let us take a closer look at the numbers
Inside the Headlines
Penn National’s income from operations in the second quarter totaled $198.4 million, up from $181.8 million registered in the prior-year quarter. Adjusted EBITDAR increased 64.5% from the year-ago quarter to $406.5 million. Also, adjusted EBITDA margin expanded 80 basis points to 30.7%.
Meanwhile, the traditional net debt ratio was 2.67x, and net leverage including master lease obligations came in at 5.8x.
Other Financial Information
At the end of the second quarter, cash and cash equivalents decreased to $378.8 million compared with $479.6 million at the end of Dec 31, 2018. Further, the bank debt as of Jun 30, 2019, were $2,056.1 million, up from $1,907.9 million at the end of Dec 31, 2018.
Third-Quarter and 2019 Guidance
For the third quarter, net revenues are expected to be $1,370.5 million, reflecting a 73.5% improvement from the year-ago quarter. Full-year revenues are anticipated to be $5,338 million, up from the previously anticipated $5,173.1 million. Revenues are projected to rise 48.8% year over year.
Adjusted earnings for the third quarter are predicted to be 42 cents compared with 38 cents registered in the prior-year quarter. Meanwhile, earnings for 2019 are anticipated to be $1.57, up from prior estimate of $1.36. In 2018, the company reported earnings of 93 cents.
Penn National, which is in the process of integrating Pinnacle properties, has provided an update on the cost synergies. It expects to achieve at least $120 million (up from the prior estimate of $115 million) of cost synergies by 2020 end, with at least $60 million in 2019 and $65 million by 2020.
Penn National also added that the acquisition of Greektown’s operations, valued at $300 million, will help drive its business.
Moreover, 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.
These apart, Penn National has reached a multiyear agreement for online sports betting with DraftKings, PointsBet, theScore and The Stars Group.
How Have Estimates Been Moving Since Then?
Estimates revision followed a flat path over the past two months.
At this time, Penn National Gaming has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile 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.
Penn National Gaming has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
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