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Here's Why You Should Add Penn National to Your Portfolio Now
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Penn National Gaming, Inc. (PENN - Free Report) is known for consistent business strategies and strong brand recognition. Through various acquisition and divestitures, the company’s presence has become widespread.
Notably, it is one of the best performing gambling stocks in the industry and promises solid momentum in the months ahead. Hence, if you still have not taken appreciation of this Zacks Rank #1 (Strong Buy) stock to date; it’s time that you add it to your portfolio.
Backed by strong brand image, shares of the company have gained 39% in the past year against the industry’s collective decline of 7.7%.
Let’s delve deeper into factors that make Penn National a lucrative investment choice now.
Strong Top-Line Momentum — Major Growth Driver
Penn National derives revenue stream from a number of sources. The company’s gaming revenues increased 3.3% year over year in 2017 and 4.4% in 2016. Further, food, beverage, hotel and other revenues increased 4.6% and 18.5% year over year in 2017 and 2016, respectively. Subsequently, its net revenues grew 3.7% and 6.9%, respectively, in both the years.
For 2018, the company expects revenues of $3.21 billion, up 1.9% year over year. Moreover, the consensus estimate projects revenues to grow 2.3% in 2018 compared with that of 2017. Given the increased demand for leisure services and the company’s enormous scale, we believe that the top line will continue to grow in the near term.
Margin-Expansion Strategies Bode Well
During 2017, Penn National engaged third-party consultants to help it validate and quantify a set of initiatives that are expected to improve its industry-leading property level operating margins in coming years. This effort encompasses both revenues and cost-saving initiatives, which are likely to reap recurring benefits over the years.
Through ongoing refinements in procurement, marketing and labor management, the company reported margin growth in the second quarter of 2018. In the last-reported quarter, adjusted EBITDA margins increased 133 basis points (bps) to 29.9%, with 18 of the 23 gaming operations posting improved margins.
In fact, Penn National exceeded its EBITDA guidance by over $4 million. For 2018, the company expects adjusted EBITDA to increase by more than 300%. The consensus estimate predicts earnings to grow 14.1% year over year in 2019.
Acquisition Strategies to Fortify Brand Presence
Penn National is known for acquisition strategies that help it expand presence as well as improve revenue yields. In 2017, it entered an agreement to acquire leading regional gaming operator, Pinnacle Entertainment, Inc. This transaction, which is expected to close in the second half of 2018, is likely to add 11 properties to its current properties. This casino giant expects to realize synergies worth $100 million from Pinnacle acquisition.
Meanwhile, in Pennsylvania, the company acquired two category 4 licenses in the bidding process in the first quarter. Each license can have up to 750 slot machines and 40 table games. Additionally, the company plans to close the Margaritaville transaction in fourth-quarter 2018, post Pinnacle venture.
Favorable Industry Scenario
Being one of the largest entertainment markets in the world, casinos seldom fail to build businesses. This is because demand for casino services is relatively inelastic as it targets a fixed range of consumers who will continue to visit casinos, irrespective of market conditions.
Per Research and Markets, the casino gaming market in the United States is expected to witness compound annual growth rate of 4.74% in during2017-2021. Moreover, backed by rise in discretionary spending and lenient government regulations, Penn National, following the path of most casino giants —including Wynn Resorts (WYNN - Free Report) , Melco (MLCO - Free Report) and Las Vegas Sands (LVS - Free Report) , is about to sustain and continue with its growth story.
Furthermore, the recent court ruling, which allows sports betting at casinos, is an added advantage for these companies. Per Eilers&Krejcik Gaming 2017 reports, the legal sports betting market is likely to garner $6.03 billion in revenues annually by 2023.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Image: Bigstock
Here's Why You Should Add Penn National to Your Portfolio Now
Penn National Gaming, Inc. (PENN - Free Report) is known for consistent business strategies and strong brand recognition. Through various acquisition and divestitures, the company’s presence has become widespread.
Notably, it is one of the best performing gambling stocks in the industry and promises solid momentum in the months ahead. Hence, if you still have not taken appreciation of this Zacks Rank #1 (Strong Buy) stock to date; it’s time that you add it to your portfolio.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Backed by strong brand image, shares of the company have gained 39% in the past year against the industry’s collective decline of 7.7%.
Let’s delve deeper into factors that make Penn National a lucrative investment choice now.
Strong Top-Line Momentum — Major Growth Driver
Penn National derives revenue stream from a number of sources. The company’s gaming revenues increased 3.3% year over year in 2017 and 4.4% in 2016. Further, food, beverage, hotel and other revenues increased 4.6% and 18.5% year over year in 2017 and 2016, respectively. Subsequently, its net revenues grew 3.7% and 6.9%, respectively, in both the years.
For 2018, the company expects revenues of $3.21 billion, up 1.9% year over year. Moreover, the consensus estimate projects revenues to grow 2.3% in 2018 compared with that of 2017. Given the increased demand for leisure services and the company’s enormous scale, we believe that the top line will continue to grow in the near term.
Margin-Expansion Strategies Bode Well
During 2017, Penn National engaged third-party consultants to help it validate and quantify a set of initiatives that are expected to improve its industry-leading property level operating margins in coming years. This effort encompasses both revenues and cost-saving initiatives, which are likely to reap recurring benefits over the years.
Through ongoing refinements in procurement, marketing and labor management, the company reported margin growth in the second quarter of 2018. In the last-reported quarter, adjusted EBITDA margins increased 133 basis points (bps) to 29.9%, with 18 of the 23 gaming operations posting improved margins.
In fact, Penn National exceeded its EBITDA guidance by over $4 million. For 2018, the company expects adjusted EBITDA to increase by more than 300%. The consensus estimate predicts earnings to grow 14.1% year over year in 2019.
Acquisition Strategies to Fortify Brand Presence
Penn National is known for acquisition strategies that help it expand presence as well as improve revenue yields. In 2017, it entered an agreement to acquire leading regional gaming operator, Pinnacle Entertainment, Inc. This transaction, which is expected to close in the second half of 2018, is likely to add 11 properties to its current properties. This casino giant expects to realize synergies worth $100 million from Pinnacle acquisition.
Meanwhile, in Pennsylvania, the company acquired two category 4 licenses in the bidding process in the first quarter. Each license can have up to 750 slot machines and 40 table games. Additionally, the company plans to close the Margaritaville transaction in fourth-quarter 2018, post Pinnacle venture.
Favorable Industry Scenario
Being one of the largest entertainment markets in the world, casinos seldom fail to build businesses. This is because demand for casino services is relatively inelastic as it targets a fixed range of consumers who will continue to visit casinos, irrespective of market conditions.
Per Research and Markets, the casino gaming market in the United States is expected to witness compound annual growth rate of 4.74% in during2017-2021. Moreover, backed by rise in discretionary spending and lenient government regulations, Penn National, following the path of most casino giants —including Wynn Resorts (WYNN - Free Report) , Melco (MLCO - Free Report) and Las Vegas Sands (LVS - Free Report) , is about to sustain and continue with its growth story.
Furthermore, the recent court ruling, which allows sports betting at casinos, is an added advantage for these companies. Per Eilers&Krejcik Gaming 2017 reports, the legal sports betting market is likely to garner $6.03 billion in revenues annually by 2023.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Click here for the 6 trades >>