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mid-cap

A NASDAQ-Listed Gaming Stock Trading at Attractive Levels - PENN

Nov 18, 2021 | Team Kalkine
A NASDAQ-Listed Gaming Stock Trading at Attractive Levels - PENN

Penn National Gaming, Inc.

PENN Details

Penn National Gaming, Inc. (NASDAQ: PENN) is a multijurisdictional, leading, diversified owner and omni-channel operator of gaming and racing venues, online gaming, retail and online sports betting activities, and video gaming terminal (VGT) operations. It has ownership interests in 43 gaming and racing properties in 20 states as of September 30, 2021, including Hollywood Casino York in York, Pennsylvania, and Hollywood Casino Perryville in Perryville, Maryland.

Latest News:

  • Inorganic Growth Endeavors: On October 19, 2021, PENN announced the completion of its previously announced acquisition of Score Media and Gaming Inc. (theScore), a digital media and sports betting firm, for a total consideration of approximately USD 2.0 billion in cash plus stock. With this deal, PENN becomes North America's premier provider of digital sports content, gaming, and technology.
  • Opening of Career Center: On September 07, 2021, PENN stated that it has created an employment center and is taking applications for about 375 new opportunities at Hollywood Casino Morgantown, which is slated to open by FY21 end, subject to usual regulatory clearances.

9MFY21 Results:

  • Expansion in Revenues: PENN reported an increase of 69.82% in total revenues to USD 4.33 billion during 9MFY21 (ended September 30, 2021) compared to USD 2.55 billion during 9MFY20, due to solid visitation levels, increased length of play, continued growth in its online and sports betting revenues, and opening of two new properties.
  • Improvement in Net Income: PENN recorded a net income of USD 375.7 million vs. a loss of USD 681.8 million reported during 9MFY20.
  • Surge in Adjusted EBITDA: The company witnessed an increase in adjusted EBITDA to USD 1.17 billion during 9MFY21 from USD 419.1 million during 9MFY20.

Key Risks:

  • Geographic Concentration Risk: PENN earned 16.7%, 10.7%, and 15.6% of its revenues in FY20 from its properties in Louisiana, Missouri, and Ohio, respectively. Furthermore, the property in Charles Town, West Virginia, accounted for 6.6% of the total FY20 revenue. As a result, poor economic conditions in any of these regions might harm the company's overall performance.

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

  • % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

PENN Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

PENN's stock price has fallen 53.41% in the past nine months and is leaning towards the lower band of the 52-week range of USD 54.43 to USD 142.00. The stock is currently trading far below its 50 and 200 DMA levels, and its RSI Index is at 30.63, indicating an oversold zone. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 65.65.

Considering the company's growth prospects, strategic acquisition, strong margins, associated risks, and current trading levels, we recommend a "Buy" rating on the stock at the current price of USD 54.79, down 3.30% as of November 17, 2021, 10:57 AM ET.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.