Time to Unwrap the Stock of the Week

NASDAQ: PENN | Penn National Gaming, Inc. News, Ratings, and Charts

PENN – Time to place your chips on Penn National Gaming. 40% EPS growth + 36% upside to fair value. Stock price at the time of this analyst call was $20.44.


Update: As of Jun. 2, 2020, this bullish analyst call has returned 53.40%.

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Everything changed on Thursday September 5th when the US and China agreed to a “higher level” of negotiations in October.

Investors said OUT with boring defensive income stocks and IN with more aggressive growth positions. Many of those growth stocks had stellar outlooks and yet still had their stock prices pounded because of the lack of risk appetite before that September 5th announcement.

Many of these previously overlooked stocks are still a far cry away from fair value. A great example of that is todays selection, Penn National Gaming (PENN - Get Rating). Even with shares up 20% in the past month it still has 36% upside to reach the average Wall Street analyst target. And a full 50% upside to reach the street high target.

That value story is a good place to start. Gladly there is even more to like about PENN as you will see below:

Growth

This regional gaming company has made a lot of strategic investments and acquisitions to grow its business over the last few years. Now they want to harvest that hard work which translates to 40% expected EPS growth over the next 3-5 years. Yes, that is extraordinary growth this late in the economic cycle when most companies are settling into single digit growth rates.

What’s even more impressive than the 40% profit improvement is how they are actually exceeding expectations.  This was on display this past quarter when they posted a 25% earnings beat. Analysts were just ecstatic with their margin expansion leading them to amply raise estimates for the quarters ahead.

Momentum

The market has been volatile leading to very lumpy results…especially for a $2 billion market cap growth stock like PENN. However, it has been searing hot the past month rising 20%. Looking back over the past 3 years it has also posted impressive gains of 56%.

The recent breakout above $20 looks secure with five consecutive closes above the mark. This level should now provide ample support for explorations to new highs.

Insider Activity

This is a cherry on top of an already tasty stock. PENN management likes what they see in their company leading to healthy insider buying activity with 4 different Directors of the firm buying shares in the past month. These insiders know more about what lies ahead for the firm than anyone else. So if they are feeling giddy enough to add extra shares at this time…then a great signal to us that more good times should lie ahead.

Putting It Altogether

It’s true that gaming stocks are a volatile group. But now is the time to take a little more risk in our portfolios. Especially a calculated risk with an attractive growth and value stock like PENN that also has several insiders wagering on their future. It definitely feels like the odds for outperformance are tipped in our favor.

Note that I added shares of PENN to the Reitmeister Total Return portfolio back on 9/9 as it looked poised for a breakout above $20. Gladly I still see ample upside potential, which is why I feel comfortable naming it my Stock of the Week.

To see all of my current recommendations (10 stocks & 3 ETFs), plus my market outlook, then consider taking a 30 day trial to the Reitmeister Total Return portfolio.


PENN shares were unchanged in after-hours trading Tuesday. Year-to-date, PENN has gained 8.55%, versus a 21.52% rise in the benchmark S&P 500 index during the same period.


About the Author: Steve Reitmeister


Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks. More...


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