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Here's Why You Should Retain PENN Entertainment (PENN) Stock

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PENN Entertainment, Inc. (PENN - Free Report) is likely to benefit from 3C’s initiatives, the mychoice loyalty program and Barstool Sports expansion. This and the emphasis on game development initiatives bode well. However, a rise in operating expenses is a concern.

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

Growth Catalysts

PENN Entertainment 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. During the third quarter of 2022, the company unveiled 3Cs in Kansas, making it its 10th property in four states. Also, it reported solid guest adoption of digital wallets with higher frequency visitation and greater gaming spend per trip. Given the solid customer acceptance and its supporting role in the omnichannel business approach, the company expects to roll out 3Cs technology in additional properties by 2022 end. However, it is subject to regulatory approvals.

Increased focus on the mychoice loyalty program bodes well. With approximately 26 million members, the program offers a unique set of rewards and experiences across business channels. It enables members to earn loyalty points that are redeemable for slot play and complimentaries, mychoice redemption mall and products offered at retail stores across its properties. Also, it allows members to earn credit toward tier status, which entitles them to receive certain other benefits, such as priority access, discounts, gifts and free play. During the quarter, the company reported growth in mychoice database with year-over-year increases in rates across all segments. Given dynamic retail sports books and sports bars, third-party F&B concepts, refreshed hotel products, new entertainment and technological initiatives, the company anticipates the momentum to continue in the upcoming periods as well.

PENN Entertainment continues to focus on the Barstool Sports expansion across the United States. The company’s Barstool Sportsbooks in Louisiana continue to drive performance. 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. The company is confident about its long-term growth, which will be supported by a differentiated omnichannel approach. PENN Entertainment also expects growth opportunities in Ohio, New York, Texas, Massachusetts and Missouri.

The company emphasizes new game additions, creative marketing and leveraging the casino database to boost the Barstool-branded iCasino business. During the third quarter of 2022, the company launched 226 new third-party slot and table game offerings across its iCasino platform. Also, it emphasized on its pipeline of future customized and third-party iCasino content for both Barstool and theScore Bet. The company intends to capitalize on cross-sell opportunities from the Barstool audience derived from the leverage of Penn Game Studios and game development initiatives.

In the past six months, shares of PENN Entertainment have increased 8.3% compared with the industry’s 2.6% growth.

Zacks Investment Research
Image Source: Zacks Investment Research


The company is shouldering higher expenses, which are denting margins. During the third quarter of 2022, the company reported high costs associated with food, beverage, hotel, retail, racing, and interactive operations. Total operating expenses during the quarter came in at $1,488.3 million compared with $1,272.7 million reported in the prior-year quarter. For 2022, the company anticipates capital expenditures to be approximately $300 million, of which $200 million is allotted for maintenance and $100 million is allotted for return-generating discretionary projects (including 3Cs, Barstool retail sports book and hotel room renovations).

Zacks Rank & Key Picks

PENN Entertainment 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 Zacks Consumer Discretionary sector are Hyatt Hotels Corporation (H - Free Report) , Crocs, Inc. (CROX - Free Report) and Boyd Gaming Corporation (BYD - Free Report) .

Hyatt currently has a Zacks Rank #2 (Buy). H has a trailing four-quarter earnings surprise of 652.3%, on average. The stock has increased 19.6% in the past year.

The Zacks Consensus Estimate for H’s current financial year sales and earnings per share (EPS) indicates a surge of 92.6% and 121.8%, respectively, from the year-ago period’s reported levels.

Crocs currently has a Zacks Rank #2. CROX has a long-term earnings growth rate of 15%. Shares of Crocs have plunged 43.7% in the past year.

The Zacks Consensus Estimate for CROX’s 2022 sales and EPS indicates a rise of 51.5% and 23.7%, respectively, from the year-ago period’s levels.

Boyd Gaming carries a Zacks Rank #2. BYD has a long-term earnings growth rate of 12.8%. The stock has gained 0.3% in the past year.

The Zacks Consensus Estimate for BYD’s 2022 sales and EPS indicates growth of 4.6% and 12.7%, respectively, from the year-ago period’s reported levels.

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