Penn National, with a host of regional casinos, isn’t as beholden to Las Vegas as other gambling companies are. Here, Penn National’s Tropicana Las Vegas property late last year.
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Penn National Gaming’s stock has been on a tear as the company’s regional properties held up well during the pandemic. One analyst thinks it’s now time to bail out.
Penn National Gaming (ticker: PENN) operates casinos and other properties in many states, including Pennsylvania, Ohio, Nevada, Illinois, Missouri, and Mississippi. The Wyomissing, Pa.-based company also has a partnership with Barstool Sports, a digital gambling platform that offers the company an entrée into a fast-growing and coveted part of the market.
Loop Capital Markets downgraded the stock to Sell in a report Thursday, citing “too many red flags.” The stock—up more than 20% this year after a nearly 300% gain over the past year—was around $104 Thursday morning, basically flat on the day.
“We believe the magnitude of the stock’s outperformance is unwarranted, however, particularly given PENN’s Barstool app is still only live on one state, [Pennsylvania], where PENN is losing share,” wrote Daniel Adam, senior vice president at Loop Capital Markets. “Simply put, there are too many red flags for us to justify a Hold rating, we are downgrading the stock to Sell.”
Penn National Gaming couldn’t be reached for comment.
Two other red flags Adam also cited: the recent departure of the gambling company’s chief financial officer after less than a year in the job, and a shift in the investor base to “shorter-term oriented ‘renters’ of the stock as opposed to longer-term investors.”
Penn National’s previous CFO, David Williams, stepped down as of Dec. 31. He was replaced by Felicia Hendrix, formerly a sell side analyst for Barclays who covered the industry.
During the pandemic, Penn and other regional casino operators, including Boyd Gaming (BYD), have fared much better than those companies tethered to Las Vegas. The regional players rely heavily on drive-to customers who gamble—and much less for conventions, conferences, and entertainment.
“Regional casinos have benefited tremendously from the fact that in a lot of states, they are the only game in town right now, with everything else closed,” Carlo Santarelli, an analyst at Deutsche Bank, told Barron’s recently.
Still, Penn National Gaming has been hit by the pandemic-induced economic slowdown. Third-quarter 2020 revenue totaled about $1.1 billion, down from nearly $1.4 billion a year earlier.
But adjusted earnings before interest, taxation, depreciation, amortization and rents came in at $452.6 billion, up from $407.9 billion a year earlier.
Write to Lawrence C. Strauss at [email protected]
