Penn National Gaming (PENN) reported weaker-than-expected fourth-quarter earnings on Thursday before the market open. Penn stock edged higher after initially falling early Thursday.
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The report comes ahead of what’s expected to be the biggest sports betting event ever: Super Bowl LV this weekend, when gamblers will wager an estimated $500 million.
Penn National Gaming Earnings
Estimates: Zacks consensus estimates pegged Penn National Gaming earnings at 24 cents a share, swinging from an 80-cent loss a year ago. Revenue was seen falling 19% to $1.09 billion.
Results: Penn earnings came in at 7 cents a share. Revenue sank 23% to $1.03 billion.
The pandemic has put a dent in the revenue of casino operators like Penn. They’ve have had to shut down brick-and-mortar casinos or keep them open with limited capacity to follow distancing directives.
To make up for some of those losses, Penn has made a big push into online gaming. It closed its $163 million deal for a 36% stake of sports betting app Barstool on Jan. 26. In addition, iCasino revenue is likely to have boosted the top line too.
Penn Stock
Shares edged higher after initially falling before the open on the stock market today. Penn stock is extended beyond buy range after clearing a buy point of 76.72 on Dec. 14, MarketSmith chart analysis shows. Shares hit a record 113.17 on Tuesday before reversing slightly lower.
The relative strength line, which measures Penn stock’s performance vs. the S&P, is trending upwards. The EPS Rating is just 39, as Penn posted its first profitable quarter in Q3, after a string of losses in the three previous quarters.
Among other gambling stocks, DraftKings (DKNG) rose 4.4%, extending its recent breakout. DraftKings and the NFL expanded their fantasy football partnership to Canada.
MGM Resorts (MGM), Wynn Resorts (WYNN) and Las Vegas Sands (LVS) were little changed.
Profit Outlook
Analysts are optimistic Penn can maintain profitability. Rosenblatt Securities analyst Bernie McTernan, who has a buy rating on Penn stock and a price target of 115, says continued vaccine rollout will help regional casinos recover. He said in a recent note to clients: “Market share in new state launches (MI and VA) as the Barstool sportsbook app will be at the same starting line as competitors.”
McTernan says the expansion of legal sports betting also will be a catalyst. There are now 20 states and the District of Columbia that allow online sports wagering. With New York on the verge of legalizing online sports betting, McTernan says Ohio, Massachusetts, Connecticut and Canada are possible in the coming months.
Jefferies analysts recently raised their price target for Penn to 91 from 74, while Stifel analysts bumped up their outlook to 118 from 100.
Barstool Sports Partnership
Penn closed its $163 million purchase for a 36% stake of sports betting app Barstool on Jan. 26.
JPMorgan analyst Alexia Quadrani said in a note to clients that Penn’s tie-up with Barstool Sports, a digital media company, is also part of a trend in which online sports betting platforms and media companies join forces to attract new audiences at a bargain.
“Amid a growing market for U.S. sports betting, OSB companies have sought partnerships with media to help promote their brands, and acquire and monetize customers,” Quadrani said in a recent note.
For online sports betting operators, having a compelling, integrated media offering that drives further engagement (and betting activity) should favorably impact the customer acquisition costs, she added.
Follow Adelia Cellini Linecker on Twitter @IBD_Adelia.
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