Penn National Gaming, Inc.

PENN Details

Penn National Gaming, Inc. (NASDAQ: PENN) is a multijurisdictional, diversified owner and omni-channel operator of gaming and racing venues, online gaming, retail and online sports betting, and video gaming terminal (VGT) businesses. It has ownership interests in 44 gaming and racing properties in 20 states as of December 31, 2021, including Hollywood Casino York in York, Pennsylvania, and Hollywood Casino Perryville in Perryville, Maryland.

Latest News:

• Granted Certificate of Registration in Ontario: On February 03, 2022, PENN announced that its subsidiary, Score Digital Sports Ventures (Canada) Inc., has been approved by the Alcohol and Gaming Commission of Ontario to operate as an internet gaming operator (AGCO). theScore Bet was the first potential operator in Ontario to receive Gaming Labs International certification, demonstrating conformity with the Registrar's Standards for Internet Gaming, as well as the Responsible Gambling Council's RG Check iGaming Accreditation (RGC). theScore Bet must meet all remaining regulatory requirements and sign an operating agreement with iGaming Ontario before offering its internet gambling services on April 04.

FY21 Results:

• Expansion in Revenues: PENN reported an increase of 65.00% in total revenues to USD 5.91 billion during FY21 (ended December 31, 2021) compared to USD 3.58 billion during FY20. Gaming revenue, which accounted for 83.75% of the total revenue, expanded by 62.08% to USD 4.95 billion in FY21.
• Improvement in Net Income: In FY21, PENN recorded a net income of USD 420.8 million vs. a loss of USD 669.5 million reported during FY20.
• Surge in total Adjusted EBITDAR: The company witnessed an increase in adjusted Earnings before interest, taxes, depreciation, amortization and rent costs (EBITDAR) to USD 1.99 billion during FY21 from USD 1.09 billion during FY20.
• Cash and Debt Position: As of December 31, 2021, the company had cash & cash equivalents of USD 1.86 billion and total debt of USD 1.56 billion.

Key Risks:

• Geographic Concentration Risk: In FY20, PENN's properties in Louisiana, Missouri, and Ohio contributed 16.7%, 10.7%, and 15.6% of the company's revenue, respectively. Furthermore, revenue from the Charles Town, West Virginia, property accounted for 6.6% of overall revenue in FY20. As a result, deteriorating economic conditions in any of these regions may harm the company's overall success.
• Contingent Risks from COVID-19 Pandemic: PENN operates in the Casinos & Gaming industry, which suffered a massive hit due to the outbreak of the COVID-19 pandemic. Should this declining trend continue, it will impact the discretionary spending of consumers on entertainment and leisure activities, which could harm the company's financials.

Outlook:

• FY22 Guidance: As of FY21, PENN expects to clock revenues of USD 6.07 – 6.39 billion, with adjusted EBITDAR of USD 1.85 – 1.95 billion in FY22.

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 FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation:

PENN's stock price has fallen 34.13% in the past six months and is currently leaning towards the lower end of its 52-week range of USD 37.76 to USD 142.00. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 57.26.

Considering the significant correction in the stock price, growth prospects, economic recovery from COVID-19 pandemic, certificate of registration in Ontario, positive outlook, associated risks, and current valuation, we recommend a "Buy" rating on the stock at the closing price of USD 46.81, up 4.05% as of February 07, 2022.

Three-Year Technical Price Chart (as on February 07, 2022). Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary:

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.