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Here's Why Investors Should Retain Penn National (PENN) Stock

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Penn National Gaming, Inc. (PENN - Free Report) is likely to benefit from the Barstool Sports expansion, strategic partnerships and 3C’s initiatives. Also, an emphasis on iCasino offerings bodes well. However, a decline in traffic from pre-pandemic levels and stiff competition from peers are a concern.

Let us discuss the factors that highlight why investors should retain the stock for the time being.

Growth Catalysts

Penn National continues to focus on the Barstool Sports expansion across the United States. The company’s Barstool Sportsbooks and iCasino offerings in Michigan and Pennsylvania continue to drive performance. As of Dec 31, 2021, the company launched the Barstool Sportsbook mobile app in 11 states. The company also revealed that it is benefiting from retail Barstool Sportsbook, which continues to stimulate database growth and increases the frequency of visitation in the younger segments. Going forward, the company is confident about its long-term growth that will be supported by a differentiated omnichannel approach.

During the fourth quarter of 2021, the company boosted its iCasino offerings by unveiling its first in-house developed games. Post the launch, the company witnessed sequential improvements in handle and revenues for the Barstool Casino. The company stated that in-house games contributed more than 20% of Barstool Casino’s handle and revenues. Going forward, the company intends to capitalize on cross-sell opportunities from the Barstool audience derived from the leverage from Penn Game Studios and game development initiatives (like Barstool Blackjack and Barstool Slots). The factors also pave the path for a reduction in third-party content fees.

Penn National is collaborating with various gaming companies to leverage its unique brands, cater to large audiences and fulfill commitments toward sports fans. The company is optimistic about the immense brand value of Barstool and theScore. The acquisition of theScore, which is the strongest sports brand of Canada, will automatically drive Penn National’s brand expansion in the country. Along with the amplification of the company’s brand value, the buyout will help to cross-promote and cross-market between two large brands.

Penn National continues to evolve toward the new generation of cordless, cashless and contactless technology, collectively known as 3C’s, to drive growth. The technological solution not only removes friction from transactions and reduces wait times but also bolsters its marketing capabilities. Amid the coronavirus crisis, such initiatives coupled with the company’s differentiated omnichannel strategy have paved the path for improved efficiency and customer service, thereby enhancing the top line. Currently, 3C's are live in all of Pennsylvania properties and at four casinos in Ohio. Backed by solid customer acceptance and its supporting role in the omnichannel business approach, the company expects to roll out 3Cs technology in other regions, subject to regulatory approvals.


Zacks Investment Research
Image Source: Zacks Investment Research

Shares of Penn National have declined 60.7% in the past year compared with the industry’s 41.1% fall. The dismal performance was caused by the coronavirus crisis. During fourth-quarter 2021, the company’s operations were affected by a spike in omicron cases as well as COVID-related restrictions. Although the company resumed operations in all of its properties, traffic is still below pre-pandemic levels. Given the uncertainty revolving around the crisis, chances of operational restrictions (imposed by governmental authorities), reimposing stay at home orders and travel restrictions cannot be ruled out.

The company is continuously facing intense competition from various casinos, video lottery, gaming at taverns and other Internet wagering services.

Zacks Rank & Key Picks

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.

Some better-ranked stocks in the Consumer Discretionary sector are Funko, Inc. (FNKO - Free Report) , Boyd Gaming Corporation (BYD - Free Report) and Bluegreen Vacations Holding Corporation (BVH - Free Report) .

Funko sports a Zacks Rank #1 at present. FNKO has a trailing four-quarter earnings surprise of 96.2%, on average. Shares of the company have declined 18.2% in the past year.

The Zacks Consensus Estimate for Funko’s current financial-year sales and EPS (earnings per share) suggests growth of 22.6% and 26.8%, respectively, from the year-ago period’s reported levels.

Boyd Gaming presently carries a Zacks Rank #2 (Buy). BYD has a trailing four-quarter earnings surprise of 48.8%, on average. Shares of the company have gained 5.6% in the past year.

The Zacks Consensus Estimate for BYD’s current financial-year sales and EPS indicates growth of 2.3% and 2.9%, respectively, from the year-ago period’s reported levels.

Bluegreen Vacations presently carries a Zacks Rank #2. BVH has a trailing four-quarter earnings surprise of 425.1%, on average. The stock has increased 32.7% in the past year.

The Zacks Consensus Estimate for BVH’s current financial-year sales and EPS indicates growth of 8.3% and 20.8%, respectively, from the year-ago period’s reported levels.