Penn National Gaming, Inc. (PENN) is an operator of video gaming terminals, live sports betting and racing properties in the United States. The launch of PENN’s online Barstool Sportsbook in Michigan and Illinois, as well as the company’s fully integrated player loyalty program, have bolstered its growth in the first quarter of 2021. The stock has gained 163.9% over the past year and 9.4% over the past six months.

A substantial uptick in player visitation and spend-per-visit has helped the company to improve its profit margin significantly. Also, responsible reopening efforts amid a ramped-up vaccine roll out in the United States and pent-up demand for gaming should keep driving the company’s performance in the near term.

Because PENN remains focused on achieving top-three gaming revenue market share for Barstool Sportsbook, we believe it is well-positioned to soar.

Here is what we think could shape PENN’s performance in the near term:

Expansion of Barstool Sports Betting App

On May 14, PENN announced plans to launch the company’s Barstool Sportsbook mobile app on iOS and android this month in Indiana, pending final regulatory approvals. The announcement came in the wake of the Indiana Gaming Commission’s approval of the company’s application to offer online sports wagering in the state. After having successfully launched the app in Pennsylvania, Michigan, and Illinois, this will mark the company’s fourth online sports betting market.

With more states offering legalized sports betting and online wagering, PENN is well-positioned to leverage the building demand for the app.

Launch of Penn Game Studios

On May 3, the company announced the establishment of Penn Game Studios, an in-house content development team, which is focused on generating exclusive iCasino content for its customers. Also, PENN is acquiring HitPoint Studios, Inc. and LuckyPoint Inc. to boost its  interactive division and further accelerate its game development and content creation. This development will leverage PENN’s 20 million mychoice customers and help it to stand out in the gaming industry.

Analysts Expect Solid Growth

A $0.72 consensus EPS estimate  for the current quarter, ending June 2021, indicates a 142.6% improvement year-over-year. PENN’s EPS is expected to rise 150% in the current year, and at the rate of 141.9% per annum over the next five years.

Analysts expect PENN’s revenues to rise 442.7% year-over-year to $1.35 billion in the current quarter, and 21.3% to $1.37 billion in the next quarter. Also, the Street expects its revenues to come in at $5.37 billion in 2021, up 50% from the same period last year.

Impressive Financials and Profitability

PENN’s gaming revenue increased 19.8% year-over-year to $1.08 billion in the first quarter, ended March 31, 2021. Its adjusted EBITDAR rose 77.2% from its  year-ago value to $447 million, while its adjusted EBITDAR margin came in at 35.1% for this period, compared to 22.6% in the first quarter of 2020. The company reported $90.9 million in net income, compared to a $608.6 million net loss  in the prior-year quarter.

PENN’s 51.3% trailing-12-month gross profit margin is 49.3% higher than the 34.3% industry average. Its EBITDA margin and levered free cash flow margin of 19.8% and 16.8%, respectively, are significantly higher than the 10.4% and 7.9% respective industry averages. In addition, the company’s $552.50 million in trailing-12-month cash from operations compares favorably with the $209.5 million  industry average.

Consensus Rating and Price Target Reflect Potential Upside

Of the 13 Wall Street analysts that have rated PENN, two rated it a Strong Buy, seven rated it Buy and four rated it Hold. The stock has an average broker rating of 1.7, indicating favorable analyst sentiment. Also, analysts expect the stock to hit $105.36 soon, indicating a potential upside of 31.4%.

POWR Ratings Reflect Promising Outlook

PENN has an overall B rating, which translates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight different categories. PENN has a B Growth Grade, which is consistent with analysts’ expectation that its revenue and earnings will grow.

Also, in terms of Quality Grade, PENN has a B. The company’s high profitability is in sync with this grade.

Click here to see the additional POWR Ratings for PENN (Value, Stability, Sentiment and Momentum).

The stock is ranked #9 of 30 stocks in the D-rated Entertainment – Casinos/Gambling industry.

If you’re looking for other top-rated stocks in the same industry with an Overall POWR Rating of A or B, you can access them here.

Bottom Line

With more people choosing gaming as a viable entertainment option, PENN’s strategic investments and expansions in the omnichannel platform should allow it to emerge as the nation’s largest regional gaming operator. In fact, the company’s thriving Barstool Sportsbook mobile app should help it capture more market share in the coming months.

PENN shares rose $1.01 (+1.26%) in premarket trading Tuesday. Year-to-date, PENN has declined -5.93%, versus a 12.78% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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