Penn National Gaming recently reported a strong earnings quarter, goosed along by its buy-in and branding with Barstool Sports, which has rolled out as an online sports gambling app in PA, the state where the regional company was born and operates two casinos, Hollywood and the Meadows.
Despite lockdowns and continuing limited capacity at its brick-and-mortar properties, the company’s third-quarter revenue fell just 12% year over year.
At the same time, net income grew 227% to $141.2 million. Operating margin was up slightly, and PENN posted record-high EBITDAR (Earnings Before Interest, Taxes, Depreciation and Amortization, plus Rent).
Larger companies reliant on fly-in destination gambling halls have not fared well in the virus recovery phase. But Penn has regained business faster.
PETA wants a say about horse racing at Penn properties
However, a new wrinkle has emerged since the earnings call.
PETA announced it had made an activist purchase of undisclosed amounts of PENN stock and shares in VICI Properties, Boyd Gaming and Gaming and Leisure Properties, which owns some of the real estate where Penn operates. Each operator owns horse tracks in conjunction with casinos.
In addition to Penn National’s two PA facilities, the Meadows and Penn National, the companies own or operate:
- Charles Town (Penn National owned)
- Mahoning Valley Racecourse (operated by Penn National)
- Retama Park (managed by Penn National)
- Sam Houston (owned by Penn National)
- Zia Park (owned and operated by Penn National)
- Mountaineer Park
- Evangeline Downs
- Delta Downs
The animal welfare organization wants to use its stock ownership to press for replacing dirt tracks with synthetic ones, banning trainers with multiple medication violations and banning whipping. There are other demands, too.
A PETA spokesperson said:
“PETA is eager to get inside the boardroom and push racetracks to make simple changes that will make a world of difference for vulnerable horses.”
How that activism will shake out for Penn and other track owners remains to be seen.
Motley Fool likes $PENN stock
Meanwhile, the Motley Fool had this assessment of PENN’s performance:
“Penn is now expected to earn $1.39 per share next year versus $0.17 just three months ago. Rolling out online gambling platforms will not be cheap, and this source of cash helps ensure Penn can compete as effectively as possible in the growing sports betting space. To further boost liquidity, the company did raise close to a billion dollars in new equity last month. It used the proceeds to pay down $670 million in net debt, thus deleveraging its balance sheet considerably.
“Penn’s brick-and-mortar properties will not be where the company creates investor excitement or company growth. It will, however, be the source of funds to pay for the growth projects Penn is orchestrating.”
Motley Fool is bullish on Penn’s future and its “omnichannel strategy” in the gambling market.
Barstool boosted Penn earnings in Q3
Much of the success in selling additional stock appears attributable to a 36% stake in Barstool Sports, which stands to increase to 50% in the near term.
Penn and Barstool made a strong debut of their online sports gambling app last month, ratcheting up interest in the company and its stock.
The app boasts 48,000 Pennsylvanian users as of the company’s most recent update and puts the upstart in the company of market leaders FanDuel and DraftKings. By our count based on September’s revenue report, Barstool is on pace to capture around 15% market share in PA.
According to the investor presentation, Michigan will get the next app rollout before the end of the year, and four Barstool-branded retail spaces should roll out between November and January. The book at Penn National is closed except for kiosks, awaiting a makeover.
Snowden believes Barstool will bootstrap the company
Jay Snowden, the CEO of Penn, was bullish on the Barstool build-out and how he thinks it will grow the company overall. He said:
“With Barstool actively promoting our retail and online sports betting offerings to their massive and growing audience, we believe we can retain and cross-sell these customers to visit our land-based casinos and play our iCasino products.”
While the stock had zoomed along in the mid-$70 range in early October, the fervor has abated, and the shares recently have been in the low to mid-$50 range.
Proceeding with caution and a boost from election results
While many analysts believe PENN is either a hold or a buy stock, there are some cautions out there.
Jim Cramer, who had talked up the stock when the Barstool buy was new, recently said he now suggests allowing the stock to trade down a bit before buying.
And the site Simply Wall Street has pointed out that the share price has had lots of volatility during the last three months, there’s been lots of insider selling and the stock sales — successful for raising cash — have diluted the value of individual shares.
That said, $PENN is currently getting an election boost, trading at over $60 Wednesday, as additional states pass pro-gambling and sports betting legislation.