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Penn National Gaming Outruns Peers, Surges 58% in a Year

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Penn National Gaming, Inc. (PENN - Free Report) has done exceedingly well and emerged as an attractive investment option amid an intensely competitive gaming industry. This is quite evident from the company’s performance in a year. The stock has surged 58.1% compared with the industry 8.9% rise.

We believe there is still a momentum left in this Zacks Rank #1 (Strong Buy) company. This is because the stock has an expected earnings growth rate of 172.2% and 51.9% for second and third-quarter 2018, respectively. Penn National also exhibits a VGM Score of B. You can see the complete list of today’s Zacks #1 Rank stocks here.

Apart from Penn National, stocks such as Boyd Gaming Corporation (BYD - Free Report) , Red Rock Resorts, Inc. (RRR - Free Report) and Century Casinos, Inc. (CNTY - Free Report) , which belong to the same industry, have witnessed a gain of 40.3%, 40.7% and 18.6%, respectively, in a year.

Let’s delve deeper and find out the reason that kept Penn National ahead of its peers.

Strategic Initiatives

Being a leading gaming company in the United States, Penn National is known for its consistent business strategies and solid brand recognition. Through various acquisition and divestitures, the company’s presence has become largely widespread. Even then, Penn National is still continues to expand and leverage its brand power further.

In 2017, the company entered into an agreement to acquire Pinnacle Entertainment, Inc. — a leading regional gaming operator. This transaction, which is expected to close in the second half of 2018, will add 11 more properties to this casino giant’s current properties. Moreover, 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.

Margin-Expansion Strategies

During 2017, Penn National engaged third party consultants to help the company validate and quantify a set of strategic initiatives that are anticipated to expand its industry-leading property level operating margins in the coming years. Through ongoing refinements in procurement, marketing and labor management, the company reported margin growth in the first quarter of 2018. Adjusted EBITDA margins in the same period expanded 42 basis points (bps) to 29.7%, with 15 of the 23 gaming operations delivering improved margins. For 2018, the company expects adjusted EBITDA to increase more than 300%.

Top-Line Growth

Penn National generates revenues from a number of sources. Given its geographical expansion, gaming revenues increased 3.3% and 4.4% year over year in 2017 and 2016, respectively. Also, food, beverage, hotel and other revenues were up a respective 4.6% and 18.5% year over in year in 2017 and 2016. The company’s net revenues also grew 3.7% and 6.9%, respectively, in both the years. In first-quarter 2018, net revenues were up 5.1% compared with the year-ago quarter number. Given increased demand for leisure services, we expect the top line to continue growing in the near term as well.

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