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Is this entertainment name a buy?

It’s time to revisit a popular sports betting name. Here is the break down on $PENN, otherwise known as Penn National Gaming.

Current Price: $67.86

52/Wk High: $142.00

52Wk Low: $50.87

Market Cap: $10.6 Billion

3 Month Performance: -16.07%

Read below for the break down!

Penn National Gaming ($PENN) is a major entertainment company that owns, operates, or manages gaming, video gaming terminals, and racing facilities across the country.

Furthermore, Penn National offers live sports betting amongst ten locations in the United States and live online sports betting through their Barstool Sportsbook app throughout Pennsylvania, Illinois, Indiana, and Michigan.

Lastly, Penn National Gaming maintains a 36% equity interest in Barstool Sports, the famed digital sports, entertainment, media, and lifestyle company founded by David Portnoy (@stoolpresidente) in 2003.

In short, Penn National maintains in all 50,000 gaming machines, around 8,800 hotel rooms, 1,300 gaming tables, Barstools loyal 66 million fans, and over 20 million casino customers.

The company is led by President and CEO Jay Snowden who joined the company in 2011. Snowden boasts experience from the likes of Caesars and more.

Sifting through the management team, leadership consists of experience from the likes of Everi Holdings, Pinnacle Entertainment, Caesars, and Comcast.

In recent news, Penn National announced the acquisition of Score Media and Gaming. In total Penn will acquire the leading digital media and sports betting technology company for a whopping $2.0 billion in cash and stock.

Digging deeper, the acquisition will “fortify” Penn National’s digital media and gaming strategy, providing the company with “cutting edge” technology, and will supply theScore’s media and betting platform to the company’s current ecosystem.

Leadership was upbeat about the deal.

“We are thrilled to be acquiring theScore, which is the number one sports app in Canada and the third most popular sports app in all of North America,” CEO Jay Snowden said.

Expanding on Penn National’s strategy, the company now has multiple areas for growth including Sports, Media, Technology, and Gaming.

Exploring the online sports betting market, if all 50 US states legalize online sports betting the market is expected to be worth $22 billion. Furthermore, according to Gabelli Securities US Sports Betting Revenues are expected to top $10.1 billion by 2028.

Digging into the numbers Penn National beat Q2 2021 expectations with an EPS of $1.17, better than the analyst’s EPS consensus estimate of $0.92. On a year-over-year basis, EPS improved by 169.23%.

On the revenues front, Penn reported $1.5458 billion in revenue throughout Q2, representing a $1.240 billion increase when compared to Q2 2019’s $223 million.

Breaking down revenues by segment, the Northeast segment delivered $652.5 million in revenue compared to just $102.7 million in Q2 of 2020.

Furthermore below is a revenue break down compared to Q2 2020.

South $368.2 M Vs. $121.5 M

West $140.4 M Vs. $17.7 M

Midwest $294.8 M Vs. $36.0 M

Other $97.7 M Vs. $27.6 M

Shifting into income, Penn National delivered $198.7 million in net income throughout the quarter, representing a significant improvement over the $214.4 million net loss in Q2 of 2020.

Rounding out income, net income margin landed at 12.9% in Q2, representing a sizable improvement over the negative -70.2% just a year ago.

Alongside income, Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) improved. In fact, Q2 adjusted EBITDA totaled $470.1 million, representing a sizable $549.4 million improvement year-over-year when compared to the previous $180.1 million.

Sifting further, Earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR) continued to improve with overall adjusted EBITDAR totaling $586.6 million in Q2, representing a $562.1 million recovery.

Below is a break down of adjusted EBITDAR by segment compared to last year.

Northeast $231.6 M Vs. $-3.6 M

South $177.1 M Vs. $44.4 M

West $61.4 M Vs. $-3.0 M

Midwest $142.2 M Vs. $-4.6 M

Other $-25.7 M Vs. $-8.7 M

Rounding out the quarter, Free Cash Flow (FCF) significantly improved, jumping 102% when compared to the Q2 2019 level to $262 million.

Shifting into the balance sheet the numbers are solid.

Total Debt: $6.691 Billion

Total Liabilities: $12.120 Billion

Total Assets: $15.078 Billion

Cash & Short Term Inv: $2.275 Billion

On a valuation basis, Penn National does trade at a premium.

Price to Earnings: 25.56x

Forward Price to Earnings: 21.58x

Price to Sales: 2.21x

Price to Book: 3.61x

Price to Cash Flow: 9.90x

Management has been effective.

Return on Equity: 20.00%

Return on Assets: 3.02%

Return on Invested Capital: 3.21%

Given the numbers, the analysts are bullish with a mean price target of $104.56/share, representing a 54.08% upside.

The high price target is $151.00/share, representing a 122.52% upside while the low price target is $31.00/share, representing a -54.32% downside.

The big money is quite involved with 85.01% of Penn National being owned by institutions. Top holders include Fidelity Management & Research, The Vanguard Group, and Baron Capital Management.

On a technical basis, Penn National could be presenting an opportunity. According to the six-month charts, the MACD is moving with slight upside momentum within a range of -0.79 down to -1.07.

The charts are also indicating an RSI of 42.03 and CCI of -75.2028, both of which are on the low end.

Sifting through investor sentiment, the bears believe that tough competition within the digital sports betting industry and continual COVID-19 outbreaks will create a tough path forward.

On the flip side, the bulls believe the social giant of Barstool sports combined with the reliable management and legacy of Penn National will bolster growth.

In short, Penn National Gaming ($PENN) is a solid company with recovering and expanding earnings, a growing social following, a solid balance sheet, and a reliable management team.


Disclaimer: This is not direct financial advice, simply an opinion based on independent research.

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