Penn National Gaming (PENN) has made a big push into online gambling as more states allow sports betting and online wagering. Is Penn stock a buy right now? Here is what the fundamentals and technical analysis say.
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Penn is the nation’s largest and most diversified regional gaming company. It has 43 properties across 20 states. Penn operates under brands that include Hollywood, Ameristar and L’Auberge. Penn Interactive operates retail sports betting across the company’s portfolio, as well as online social casino, bingo and iCasino products.
To bolster its sports betting portfolio, Penn has partnered with Barstool Sports to launch its online sports betting app in several states over the last year. On May 18, Penn launched Barstool in Indiana. Indiana is now the company’s fourth online sports betting market, following launches in Pennsylvania, Michigan and Illinois.
On Oct. 19, Penn completed its purchase of Score Media and Gaming for $2 billion. Canada-based Score launched theScore Bet app for mobile wagers in 2019. Penn said the deal will give it access to in-house technology and allow it to broaden its product offerings.
Casino Expansion
On May 27, Penn got final approval from the Maryland Lottery and Gaming Control Commission to acquire the operations of Hollywood Casino Perryville. The company struck a deal with Gaming and Leisure Properties late last year to acquire the operations of Hollywood Casino Perryville for $31.1 million. The deal expands Penn’s national footprint to 20 gaming jurisdictions.
On Aug. 12, Penn announced opened Hollywood Casino York in Pennsylvania. Located in the York Galleria Mall in Springettsbury Township, the casino represents Penn’s third facility in the state. A fourth property, Hollywood Casino Morgantown, is scheduled to open later this year.
Penn Earnings And Fundamental Analysis
Penn posted earnings of 52 cents a share, a 44% decline from the year-ago period, on sales of $1.51 billion. Wall Street consensus was for EPS declining 20% to 64 cents and sales to gain 34% to $1.51 billion. Penn stock tumbled on the earnings miss.
CEO Jay Snowden said Penn launched the Barstool Sportsbook mobile app in Colorado, New Jersey, Tennessee, Virginia, Arizona and Iowa, which more than doubled its footprint to 10 states.
Snowden added said that while July was a record month, the second half of August and September was impacted by Hurricane Ida and regional flare-ups of the delta variant, reducing margins by an around $30 million and 85 basis points.
“As the operating environment has normalized, we have seen improved results in October,” he said in a statement.
Penn also spent $12.5 million lobbying to support the California sports betting initiative and $7.5 million to launch Barstool in new states.
The IBD Stock Checkup assigns Penn stock an EPS Rating of 49 and an SMR Rating of C.
The EPS rating reflects a company’s health on fundamental earnings metrics, and its SMR Rating gauges sales growth, profit margins and return on equity.
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Penn Stock Technical Analysis
Penn stock dropped almost 10% after reporting Q3 earnings below estimates. Shares are trading around $66, well below their intraday high of 142 on March 15, when news broke that Penn would be added to the S&P 500 on March 22. Rival Caesars was added at the same time.
Shares closed below their 10-week line on March 26, reclaiming that key level in the last few weeks, only to dip below it again, MarketSmith chart analysis shows. Penn shares are also trading below its long-sliding 50-day line.
The relative strength line is slumping, near all-time lows. Penn stock has a Relative Strength Rating of 25 out of a possible 99.
With a Composite Rating of 39 out of 99, Penn is ranked No. 20 in the leisure gaming/equipment industry group. The rating combines key fundamental and technical metrics in a single, easy-to-use score.
Penn stock is a component of the Roundhill Sports Betting & Gaming ETF (BETZ), which holds dozens of gambling stocks. BETZ’s top holdings include Penn, as well as rivals Flutter Entertainment (which owns FanDuel), DraftKings and William Hill PLC.
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Penn Game Studios Launch
On May 3, Penn announced it had created Penn Game Studios, an in-house content development team focused on creating exclusive iCasino content. To fuel this effort, Penn is acquiring HitPoint Studios and its spun-off real money gaming company, LuckyPoint. Terms of the deal were not disclosed.
“We will now have the ability to create exclusive content for our audiences, further leverage the Barstool Sports brand and our database of 20 million myChoice customers, and create cross-marketing opportunities with our brick-and-mortar facilities,” Snowden said in a statement.
HitPoint is an independent game design and development studio founded in 2008. It develops platforms for real-time multiplayer casual mobile games and runs the day-to-day live operations for multiple games using their proprietary technology stack.
In 2019, HitPoint spun out LuckyPoint to focus on real-money game development and the creation and operation of a remote gaming server. In addition to traditional online casino table games and slot machines, the LuckyPoint RGS brings a variety of gaming styles to desktop and mobile devices, including retro-style arcade games and puzzle games.
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Online Gambling Lifts Penn Stock
After the Supreme Court ruled in 2018 to overturn a federal ban on sports betting, 25 states have passed laws allowing it, including online gambling.
The online gambling market is slated to reach $127.3 billion by 2027, according to Grand View Research.
In September, Penn launched Barstool in Pennsylvania, the No. 3 betting market in the U.S., behind New Jersey and Nevada. Barstool expanded in Michigan in January.
On March 11, Penn launched its Barstool app in Illinois, in time for the college basketball tournament March Madness, which ran from March 18 to April 5. The tournament brought in $1.5 billion in betting revenue, according to PlayUSA.com. In February, the Super Bowl took in nearly $500 million.
Illinois is also home to one of Barstool’s top markets, Chicago.
“The initial results for the first 30 days of operations exceeded our expectations, with better first-time deposit conversions relative to what we had generated in Pennsylvania or Michigan,” Snowden said in a statement.
During this period, Barstool registered over 54,700 new customers and generated total handle and gaming revenue of $67.7 million and $6.5 million, respectively.
Barstool now has more than 400,000 customers and generated over $660 million and $61 million in handle and gaming revenue, respectively. The company plans to roll out Barstool in eight states by football season and in at least 10 states before the end of the year.
The expansion of legal gambling could also be a boon rivals DraftKings (DKNG), Flutter Entertainment‘s (PDYPY) FanDuel, Red Rock Resorts (RRR), Caesars Entertainment (CZR) and Churchill Downs (CHDN).
Recently, Penn’s Barstool has seen its market share shrink. Barstool’s share fell to 7% in September from 12% in August, according to a Morgan Stanley report on Oct. 5. Meanwhile, rival BetMGM had about 12% market share in September vs. 11% in August. DraftKings had the largest share with 32%, followed by FanDuel at 27%. Both DraftKings and FanDuel also increased their share from last month by 2% and 7%, respectively.
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New York Passes Gambling Law
On April 7, New York state passed a budget with a bill to legalize online sports betting. The law authorizes New York’s State Gaming Commission to choose two platform providers to become mobile sports wagering operators based on a competitive bidding process.
The commission may allow more than two mobile sports wagering operators if it finds that doing so is in the best interests of the state. Licensees must pay a one-time $25 million fee to the state. And the operator’s license will need to be renewed after 10 years.
New York is one of the Big Four states that would really move the needle for gambling stocks like Penn. The other three are Michigan, which already allows online sports wagering, Florida and California.
Legal online sports betting launched in Canada on Aug. 27. That opens a door to expansion north of the border for Penn, DraftKings and others.
Is Penn Stock A Buy Now?
While the market for online gambling is growing and can be a promising revenue stream for Penn, analysts caution there could be bumps in the road. Two of the so-called Big Four states still do not allow sports betting. New York and Michigan recently passed laws allowing sports wagering, but California and Florida have not.
Penn stock has soared to record highs, but has since retreated below its 50-day moving average.
Bottom line: Penn stock is not a buy as it is trading well below its 50-day line and its 200-day line. Still, as a leader in the booming sports betting market, investors should keep an eye on this stock for future buying opportunities. Also note that while the company posted three straight quarters of profits, it recorded a loss in the last quarter.
Follow Adelia Cellini Linecker on Twitter @IBD_Adelia.
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