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Why Is Penn National Gaming (PENN) Down 1.5% Since Last Earnings Report?

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A month has gone by since the last earnings report for Penn National Gaming (PENN - Free Report) . Shares have lost about 1.5% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Penn National Gaming due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Penn National Q1 Earnings and Revenues Miss Estimates

Penn National reported first-quarter 2019 results, wherein both earnings and revenues missed the Zacks Consensus Estimate after delivering a beat in the preceding quarter. Following the quarterly results, shares of the company declined 4.8% on May 2.

Adjusted earnings came in at 35 cents per share, missing the consensus estimate by a couple of cents. Net revenues totaled $1,282.6 million, which lagged the consensus mark of $1,289 million but surged 36.4% from the year-ago quarter number.

The Northeast segment reported revenues of $550.6 million, up 20% year over year. At the West, Midwest and South segments revenues came in at a respective $158.7 million, $271.3 million and $291.9 million, up 61.9%, 46.2% and 361% year over year. Meanwhile, the Other segment reported revenues of $10.1 million, down from $10.5 million.

Let us take a closer look at the numbers

Inside the Headlines

Penn National’s income from operations in the first quarter totaled $182.4 million, up from $10.3 million registered in the prior-year quarter. Adjusted EBITDAR increased 38% from the year-ago quarter to $391.4 million. Also, adjusted EBITDA margin expanded 80 basis points to 30.5%.

Meanwhile, the traditional net debt ratio declined to 2.60x, and gross and net leverage, including master lease obligations, decreased to 6.09x and 5.79x, respectively.

Other Financial Information

Cash and cash equivalent at the end of the first quarter increased to $400.3 million compared with $479.6 million at the end of Dec 31, 2018. Further, bank debt as of Mar 31, 2019, were $1,877.9 million, down from $1,907.9 million at the end of Dec 31, 2018.

Second-Quarter and 2019 Guidance

For the second quarter, net revenues are expected to be $1,314.3 million, reflecting a 58.9% rise from the year-ago quarter. Full-year revenues are anticipated to be $5,173.1 million, down from the previously anticipated $5,207.7 million. Revenues are projected to rise 44.2% year over year.

Adjusted earnings for the second quarter are predicted to be 35 cents compared with 57 cents registered in the prior-year quarter. Meanwhile, earnings for 2019 are anticipated to be $1.36, down from 2018 figure of 93 cents.

Other Developments

Penn National, which is in the process of integrating Pinnacle properties, has provided an update about the cost synergies. The company said that it had already achieved $40 million in cost synergies as of Mar 31. It expects to achieve at least $115 million of cost synergies by 2020 end, with $55 million in 2019 and $65 million by 2020.

Penn National also added that the acquisition of Greektown’s operations, valued at $300 million, will help drive its business.

Moreover, the company’s development projects in Pennsylvania, which include the $120 million Hollywood Casino York and the $111 million Hollywood Casino Morgantown, are on track.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -20.65% due to these changes.

VGM Scores

At this time, Penn National Gaming has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Penn National Gaming has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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