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Penn National Rides on Acquisition Amid Stiff Competition
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Penn National Gaming, Inc. (PENN - Free Report) is known for its consistent business strategies and strong brand recognition. Through various acquisition and divestitures, its presence has become largely widespread. However, stiff competition and geopolitical headwinds continue to hurt the company.
Penn National’s shares have gained 6.1% so far this year, underperforming the industry’s 13.2% rally.
Let us delve deeper into factors that suggest that investors should hold on to the stock for the time being.
Penn National is known for its acquisition strategies that help it expand presence as well as improve revenue yields. In 2017, the company entered an agreement to acquire Pinnacle Entertainment, Inc., a leading regional gaming operator. This transaction closed on Oct 15. Post the transaction, the company is welcoming 12 properties. Penn National expects to realize synergies worth $100 million from its 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, on Jan 2, 2018, Penn National announced that it completed acquiring the operations of Margaritaville Resort Casino in Bossier City, LA. The purchase price of Margaritaville amounted $115 million and represented a multiple of roughly 5x of expected trailing 12-month adjusted earnings before interest, taxes, depreciation, amortization (EBITDA), and management fee for the period ended on Dec 31, 2018. The company expects the multiple to be below 4.5x, stemming from operating synergies and cost savings.
Meanwhile, Penn National impressed investors with its robust top-line growth. Its top line increased 14%, 3.7% and 6.9% in 2018, 2017 and 2016, respectively. The uptrend continued in first-quarter 2019 as the company’s top line increased 36.4% on a year-over-year basis. Given the increased demand for leisure services and Penn National’s enormous scale, we believe that the top line will continue to grow in the near term.
Concerns
The company is continuously facing intense competition from various casinos like MGM Resorts (MGM - Free Report) , Las Vegas Sands (LVS - Free Report) and Wynn Resorts (WYNN - Free Report) . Not only gaming services but any form of leisure and entertainment activities, including shopping, athletic events, television and movies, concerts, and travel put Penn National under competitive pressure. Its operations, therefore, are facing heightened competition from new entries in the already high-supply market.
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Penn National Rides on Acquisition Amid Stiff Competition
Penn National Gaming, Inc. (PENN - Free Report) is known for its consistent business strategies and strong brand recognition. Through various acquisition and divestitures, its presence has become largely widespread. However, stiff competition and geopolitical headwinds continue to hurt the company.
Penn National’s shares have gained 6.1% so far this year, underperforming the industry’s 13.2% rally.
Let us delve deeper into factors that suggest that investors should hold on to the stock for the time being.
Robust Revenue Growth & Acquisition Strategies Encourage
Penn National is known for its acquisition strategies that help it expand presence as well as improve revenue yields. In 2017, the company entered an agreement to acquire Pinnacle Entertainment, Inc., a leading regional gaming operator. This transaction closed on Oct 15. Post the transaction, the company is welcoming 12 properties. Penn National expects to realize synergies worth $100 million from its 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, on Jan 2, 2018, Penn National announced that it completed acquiring the operations of Margaritaville Resort Casino in Bossier City, LA. The purchase price of Margaritaville amounted $115 million and represented a multiple of roughly 5x of expected trailing 12-month adjusted earnings before interest, taxes, depreciation, amortization (EBITDA), and management fee for the period ended on Dec 31, 2018. The company expects the multiple to be below 4.5x, stemming from operating synergies and cost savings.
Meanwhile, Penn National impressed investors with its robust top-line growth. Its top line increased 14%, 3.7% and 6.9% in 2018, 2017 and 2016, respectively. The uptrend continued in first-quarter 2019 as the company’s top line increased 36.4% on a year-over-year basis. Given the increased demand for leisure services and Penn National’s enormous scale, we believe that the top line will continue to grow in the near term.
Concerns
The company is continuously facing intense competition from various casinos like MGM Resorts (MGM - Free Report) , Las Vegas Sands (LVS - Free Report) and Wynn Resorts (WYNN - Free Report) . Not only gaming services but any form of leisure and entertainment activities, including shopping, athletic events, television and movies, concerts, and travel put Penn National under competitive pressure. Its operations, therefore, are facing heightened competition from new entries in the already high-supply market.
Penn National currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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