Penn National Gaming (PENN) Up 98.2% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Penn National Gaming (PENN). Shares have added about 98.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Penn National Gaming due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Penn National Q1 Earnings & Revenues Miss Estimates

Penn National Gaming reported first-quarter 2020 results, wherein both earnings and revenues missed the Zacks Consensus Estimate. While the top line missed the consensus mark for the fifth straight quarter, the bottom line missed the same for the third consecutive quarter. Moreover, both the metrics declined year over year on account of the coronavirus-induced shutdowns. The company has already withdrawn its guidance due to the coronavirus outbreak.

The company commenced 2020 on a strong note, with sports betting witnessing robust growth. Introduction of sports betting at different properties drove both gaming and non-gaming revenues. However, temporary closure all 41 properties of the company in mid-March due to the coronavirus pandemic hurt the first-quarter results.

Despite the pandemic, the company remains confident about its long-term growth, which will be supported by differentiated omni-channel approach. Management stated that it continues to develop Barstool Sportsbook app and is on schedule for launch in third-quarter 2020.

Jay Snowden, president and CEO, said “Upon the reopening of our casinos, we believe Penn National is very well-positioned to resume its positive momentum. Our geographic diversification across 19 states - with no more than 15% of our revenues being derived from any single state - should be a significant benefit as states begin to open casinos on a sequential basis. We expect our regional gaming markets to rebound sooner than destination markets by virtue of our casinos being located in suburban areas that are more easily accessible by car from key population centers.”

Earnings & Revenues Discussion

Adjusted earnings came in at 6 cents per share, lagging the Zacks Consensus Estimate of 20 cents. Notably, the figure declined 82.5% year over year. Net revenues totaled $1,116.1 million, which missed the consensus mark of $1,277 million and declined 13% from the year-ago quarter.

The Northeast segment reported revenues of $520.7 million, down 5.4% year over year. The West, Midwest and South segments’ revenues came in at $126.6 million, $228.1 million and $223.3 million, down 20.2%, 15.9% and 23.5%, respectively, year over year. Meanwhile, the Other segment reported revenues of $20.3 million, up 99% year over year.

EBITDAR Declines

Adjusted EBITDAR decreased 35.5% from the year-ago quarter to $252.3 million. Moreover, adjusted EBITDAR margin contracted 790 basis points to 22.6%.

Penn National’s loss from operations in the first quarter totaled $560.6 million, against income from operations of $182.4 million in the prior-year quarter.

Other Financial Information

At the end of the first quarter, cash and cash equivalents decreased to $730.7 million compared with $437.4 million at the end of Dec 31, 2019. Further, the bank debt as of Mar 31, 2020, were $2,416.7 million, up from $1,896.5 million at the end of Dec 31, 2019.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted -427.07% due to these changes.

VGM Scores

Currently, Penn National Gaming has a poor Growth Score of F, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Penn National Gaming has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

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