Penn National Gaming: Recession Resilient Geography And Undervalued At $27

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Happy smiling girl smiling at the roulette in a casino

Penn is very enticing of millennials because of its digital presence and is seeing its important over 55 slot gamers returning.

Lacheev/iStock through Getty Images

Tuchman’s Law:

“The fact of being on the record makes it appear continuous and ubiquitous whereas it is more likely to have been sporadic both in time and place. Besides, persistence of the normal is usually greater than the effect of the disturbance as we know from our own times.”

Barbra W. Tuchman Pulitzer Prize Historian 1912-1989, creator of “The Guns of August.”

We quote Tuchman, one of the most astute observers and scholars of the cataclysmic events of the 20th Century, to support our premise that as utterly horrific as the present events and their consequences are, there is a persistence of normalcy, if you will, that always prevails.

You see words like “unprecedented” and “incomprehensible” – adjectives allied to what looks as if an infinite media screed of impending doom for the financial system and a pandemic that many see as by no means leaving us. And it is true {that a} mixture of macro elements and a clearly colossal failure of inept US management at each stage has introduced us to a fearful, inevitable slide towards recession.

But the historic fact is: Been there, accomplished that, the monetary media echo chamber however.

So buyers seeming to get extra rattled each day by the information movement – and who can blame themsearch security. You flee to the sidelines, put your cash into money and equivalents and wait it out. Or you do a relentless home cleansing of your portfolio, exiting all of the wannabe tech and shopper discretionary shares, or lowering your positions. Or you guess on a recession by holding solely dividend aristocrats, large market cap shares which are confirmed fortresses in opposition to dips, huge or little.

What typically will get misplaced within the shuffle in such parlous occasions is the truth that as historian Tuchman’s Law suggests, life does go on. People conduct their lives, make their changes, watch their bucks and move on changing the outdated junker within the storage – for now. Car costs are insane, as is the absurdity of getting to attend six months to get one. This “normalcy” crucial in human nature is how all of us survive and the way via the tumultuous twentieth Century, individuals endured one disaster after one other.

So when it comes all the way down to re-upholstering if you’ll, portfolios to face what seems to be a coming recession, buyers must see the place security and worth come collectively in a inventory. In blended market like this, it’s not a straightforward factor to see. Yet they’re on the market.

There are corporations extra well-armored in opposition to recession than others. When you determine one which does have resilience, and it is also buying and selling at a discount worth, it instructions your consideration. Thus, we current Penn National Gaming poster little one for resilience.

Penn National Gaming (NASDAQ:PENN) armed to the enamel in opposition to a coming recession

Data by YCharts

In transient: Penn is among the many most geographically well-balanced, sturdy, successfully managed corporations which have a enterprise mannequin completely tailored to endure throughout a recession: And its steadiness sheet is powerful.

Capsule glimpse 1Q22 outcomes

Revenue: $1.56b a 1.9% beat. Y/y up 22.7%. Every geographic phase posted income will increase y/y between 15% and 49%.

Adjusted EBITDAR: Up 10.7% y/y to $494m with working margins down 344 bp however nonetheless at 31.6%.

EPS: 29c huge miss in opposition to estimate of 45c. Among the important thing culprits, a $50m loss on its digital enterprise and revival of sporadic COVID fears.

Penn repurchased 3.8m shares throughout the interval for $175m, with one other $574m remaining accessible in opposition to the full licensed by the board. We ought to count on to see extra given the present discount basement buying and selling vary of the inventory going ahead.

2020E steering full yr

Revenue: $6.15b-$6.55b.

Adj. EBITARe:$1.9b to $2b.

Pre-recession liquidity place:

Cash available (mrq) $1.81b

Cash per share: $10.97

Book worth: $24.00

Total debt: $12.9b

Current ratio: 1.88

Price at writing: $27

DCF worth est: $61

Market cap: $4.57b

YTD: Stock is down 60% in a 52-week vary $26-$86. Buying now’s basically at one yr low assuming Mr. Market sees solely faint hope of the shares having any catalysts to maneuver them increased in opposition to a recession – or no recession. What Mr. Market is telling us I consider is that Penn nonetheless faces appreciable threats throughout its 44 property, 20 state footprint, from periodic COVID outbreaks. Wrong. Penn is nicely armed to steam forward.

Mr. Market does see some coherence in Penn’s well-thought-out digital presence “flagshipped” by its acquisitions of Barstool for its sports activities e book and the Score for its Canada sports activities betting efforts. Penn is also stretching its legs in creating in-house IGaming on line casino actual cash content material.

All that is smart when it comes to monetizing throughout each reside and on-line verticals, its 25m member knowledge base. The firm is also within the lead in implementing a friction-free buyer expertise now operational in its Pennsylvania properties with 9 extra slated to return on by subsequent yr.

map of us

This is the three “c”s: Cordless, contactless, cashless operations. Don’t suppose that “contactless” implies a discount in customer support fashions of excessive one-on-one contact developed over time by administration. The concept as famous is to get rid of friction in transactions as an infused worth of the enterprise mannequin meant to extend customer support interface over time.

It’s additionally to be famous that Penn continues to market closely for sports activities betting enterprise however doesn’t spend wherever close to what sector leaders like DraftKings (DKNG) do. That means two issues: One, its complete sports activities betting market share won’t transfer as much as tier one place. But regardless of persevering with to lose cash like its friends, our take is that it’s going to get worthwhile in sports activities betting with a single-digit market share prior to most.

Overall, some analysts who stay bullish on the inventory see the longer term an increasing number of in digital. Wrong. The firm is making inroads, continuing sensibly within the space. But that, in my opinion, isn’t the rationale to purchase Penn because the financial system faces no matter Armageddon which may be coming our manner.

The base case rationale for purchasing Penn now’s this:

Pent-up demand is actual and is rising. In case you will have puzzled whether or not the lengthy touted pent-up demand is actual, observe that the American Gaming Association reported that US industrial gross gaming income as proven under is up 19.33b up y/y 24.3%. There are sporadic outbreaks, transient and gentle that do affect visitation to a point, however they don’t impede the over rising long-term development of development. If you observe the statewide outcomes you may see why Penn’s geographic unfold is a fortress of resilience in opposition to recession which does are inclined to range in its regional impacts traditionally.

Penn already has benefited from the return of the core slot participant aged 55 and over who had been MIA throughout the worst COVID interval between 2020 and 2021. At the identical time, its youthful demo play within the millennial sector returned in nice numbers responding to appreciable promotional effort within the digital verticals. This has been borne out by observations of the Penn on line casino flooring, eating places, and entrance desk arrivals by key pals and former associates shared with me since 4Q21.

No matter how troublesome it could seem to mission annual EPS development going ahead into what’s hoped can be some type of endgame of COVID, the previous is certainly prologue. Over the final three years, Penn’s annual EPS development has been 39% compounded. Our expectation is that it’s going to go increased within the endgame quarters forward – assuming no new outbreaks.

In my view, buyers at this worth de facto are getting Penn’s digital promise without spending a dime. With $10 a share in money and $24 of e book worth per share, simply $3 under the commerce, you’re coming into bargainville.


The 2021 run-up in Penn shares was principally triggered by the final notion that sports activities betting shares would certainly develop like bushes to the sky. With its 25m knowledge base added to by a presumed 55 million Barstool stoolies with a heavy gaming penchant, buyers purchased the gospel of a brand new age dawning. As actuality bit, the sector tumbled, taking Penn with it to a terrific extent. What Mr. Market had completely missed was that Penn, with or with out Barstool was a terrific inventory to personal on reside gaming fundamentals and geographic footprint alone.

Penn’s Las Vegas footprint is a shrug at greatest within the Tropicana, a troubled location over the a long time. Its greatest utility is serving as a Vegas vacation spot for Penn’s 25m cardholders who pile up credit of their 44 properties in ten states. So it’s not a competitor there, however in actuality, a serviceable advertising instrument. And in shifting its realty to Gaming and Leisure Properties, Inc. (GLPI) it’s no drag on earnings.


We’re searching for a PT by the top of 2Q23 of $64 on the low vary. Our working assumption is: Lingering COVID dilemmas receding however not completely passed by 4Q23.

Remember that Penn as we all know it in the present day is a group of properties from a core grouping of restricted geography and added to strategic step-by-step with acquisitions over time. As a outcome, Penn casinos now bear 10 completely different “brands” with deep roots within the perceptions of its participant inhabitants. I consider on the proper time and proper worth we might nicely see extra acquisitions earlier than not too lengthy even additional extending Penn’s accretive EPS development.

This web page was created programmatically, to learn the article in its unique location you may go to the hyperlink bellow:
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