Published: May 4, 2021, 11: 50 hrs.
Last updated: May 4, 2021, 12: 43 hrs.
Penn National Gaming (NASDAQ: PENN) shares are often seen as a play on the boom of online casinos and online sports betting. While that's true, it could be the company's land-based locations that help the stock regain lost momentum.
Penn shares have fallen sharply since hitting an all-time high of $ 142 in March, dropping more than 39 percent. Analysts, however, are enthusiastic about the name. Todd Jordan of Hedgeye is part of the group, but he sees the operator's regional casinos boosting the share price.
We'd like to focus investors back on PENN's traditional business, which should deliver significant earnings before interest, taxes, depreciation and amortization (EBITDA) upside from the first quarter and full-year 2021 and 2022 estimates, meaning the stock is back near previous highs, "Jordan said in a Monday note to clients.
That's welcome commentary for Penn investors, as the stock is down nearly 16 percent over the past month. The company, which operates about 40 casinos in 20, reports first-quarter earnings on Thursday.
"We see value back in $120 as first quarter (and subsequent) earnings redirect investors to focus on B&M's large PENN operations and better understand the long-term online sports betting/iGaming strategy," Jordan adds.
Penn stock is now on HedgeEye's best ideas list.
Online expectations management
At a time when investors and operators are trying to get a cut of the online casino and sports betting pie, Penn management needs to better articulate "its more thoughtful strategy," according to Jordan.
Currently, sports betting is live and legal in the 21st and Washington states. Penn's Barstool Sportsbook app is only available in Illinois, Michigan and Pennsylvania, with an eye toward launching in Indiana and New Jersey this month and five more states by the end of this year. This current list of five states is light compared to its rivals. DraftKings (NASDAQ: DKNG), for example, offers mobile betting in 11 states.
Penn Sports has the advantage of capturing a solid market share in the states where Barstool Sportsbook operates with much less advertising and promotional spending than rivals.
"PENN continues to have a competitive brand and database advantage, which should provide high long-term market share and lower customer acquisition and market costs ", notes Jordan. "But management needs to adequately address the issues in their call and we think they will."
Penn Stock regional increase
Boyd Gaming's (NYSE: BYD) recently released First Quarter Earnings Report indicates that stars are aligning with regional casino operators, and some of those catalysts will likely end up at Penn National.
Citing consumers with government cash in their wallets, rising coronavirus vaccination levels and nice weather, Jordan says March could be "the beginning of a major turning point" for regional casino operators.
The analyst said Boyd was able to convince investors that the March momentum has carried over into April, and that Penn is likely to make a similar comment.
"PENN is the leader in most markets, so we don't expect them to miss the spring/summer season for casinos, which should be strong, "Jordan said.
That's important because the operator generates more than 80 percent of its revenue from traditional casinos. Hedgeye forecasts a 30 percent-plus increase for Penn stock.