After a recent depreciation in the price of Penn National Gaming's stock price, some analysts believe that the brand’s land-based gaming facilities could be its saviour. Many analysts and traders have always seen Penn National stock to be driven by more modern business opportunities like online internet gaming or sports betting online. While there is truth to that, the company’s stock is more likely to regain its momentum by way of the brick-and-mortar gaming facilities it has established.
An industry analyst from Hedgeye, a firm that specializes in independent investments and risk management, Tom Jordan and other industry analysts are optimistic about the prospects that the land-based casino sector will have on the brand’s stock price. Penn National’s stock price reached a record-high 142 USD in March 2021 but has since seen a significant decrease of around 39%.
Jordan commented on what investors should be doing when it comes to Penn National’s shares. He said that investors should be shifting their focus back on the company’s physical gaming sector. The trends and figures show that brick-and-mortar operations generate significant earnings before interest, taxes, depreciation and amortization (EBITDA) upside, especially when compared to the estimates for a full year for 2021 and 2022 along with Street Q1. These land-based locations will be contributing significantly toward driving stock prices back up to their previous glory.
The stock price over the past month has shown a decrease of nearly 16%. So, the comments from Jordan come as a relief for Pann National investors. Even though the online gaming sector is flourishing right now, the traditional forms of gaming, like going to a local casino, shouldn’t be dismissed. Penn National Gaming is operational in 20 U.S. states, running 40 casinos across the country. A major asset that is sure to prove itself. Jordan added that speaking about what Penn National still has to offer when it comes to land-based casinos is showing positive results and will continue to do so going forward.
The Q1 results and the quarters to follow should show investors how well brick-and-mortar operations are doing. Additionally, iGaming and online sports betting is a long-term strategy that keeps the company up to date with the latest in the industry and having a better understanding of it, helps settle investors and helps them trust the assets that Penn National had and will continue to develop.
According to Jordan, the strategy for online gaming and sports betting should be better communicated. Especially during a time where operators and investors are rushing to be part of the next online casino and sports betting markets. Currently, Penn National has an advantage in the states where Barstool Sportsbook is operational. The brand is managing to gain market share while spending significantly less on marketing and promotions compared to its competition in these states.
The online sports betting market has grown significantly in the past few years since The Professional and Amateur Sports Protection Act (PASPA) was overturned in 2018. Legalized sports betting is now available in Washington D.C. as well as 21 other states in the U.S. The Barstool Sportsbook app and online platform is available in Michigan, Pennsylvania and Illinois and is currently set to launch operations in New Jersey and Indiana in May 2021. Goals have also been outlined by Penn National to have the Barstool brand live in five more sports betting states by the end of 2021.
A figure that is considered low among analysts in the industry given that competitors such as DraftKings is already operational in 11 U.S. states and aiming for more. However, Jordan said that the Penn National brand has a competitive advantage when it comes to its database which should result in lower customer acquisition costs in the long term and that the management should air these concerns and plans more often to keep investors at ease.
Furthermore, the land-based casino industry is looking forward to what could be a rejuvenation. A recent Q1 earnings report from Boyd Gaming indicated that going forward, things in the industry will start to improve and Penn National is likely to benefit from the boost as well. Jordan said that consumers will have more money, there will be more accommodating health and safety regulations and the Spring and Summer weather are just a few things the industry can look forward to going forward.
He added that Boyd Gaming was successful in convincing its investors that the March momentum will flow into April and he believes that Penn National’s Q1 earnings report will contain similar remarks. With Penn national generating more than 80% of its revenue from land-based operations, Hedgeye estimates that Penn National stock should see an increase of 30% or more in the coming months and for the next quarter.