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Penn National Banks on Acquisitions 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 acquisitions and margin-improvement initiatives, its presence has become largely widespread. Notably, shares of the company have gained 47.3% over the past six months compared with its industry’s 15.6% growth.

 

However, stiff competition and weather-related woes continue to hurt the company.

Let’s delve deeper into the factors that substantiate its Zacks Rank #3 (Hold).

Growth Drivers

Being a leading gaming company in the United States, Penn National is known for its consistent business strategies and strong brand recognition. To this end, it is continuing to expand and leverage its brand power.

Most of the gaming companies are now banking on sports betting, following the legalization outside Nevada. Notably, the Supreme Court overturned the Professional and Amateur Sports Protection Act (PASPA) that banned sports betting outside Nevada. The company also stated that sports betting is gaining popularity in Ameristar Casino Council Bluffs, thanks to the opening of a retail sports book at Ameristar Casino Council Bluffs in Iowa and two retail sports books in Indiana during the third quarter. It also opened retail sports book at the Meadows Casino in Western Pennsylvania during the same period.

Additionally, Penn National is known for its acquisition strategies that help it expand presence as well as improve revenue yields. The company’s notable buyouts include Margaritaville Resort Casino in Bossier City, LA, in January 2018 and Pinnacle Entertainment in October 2018. Meanwhile, in the first quarter of 2019, it acquired two category 4 licenses in the bidding process in Pennsylvania.

These aforementioned strategic efforts along with increased demand for leisure services and Penn National’s enormous scale will further boost its top line. The company’s top-line in the first, second and third quarters of 2019 increased 36.4%, 28.8% and 71.5%, respectively, on a year-over-year basis.

For the fourth quarter of 2019, the company expects net revenues of $1,350.7 million, indicating an improvement of 16.9% from the year-ago quarter’s reported figure. Full-year revenues are anticipated to be $5,310.9 million, suggesting a rise of 48% year over year.

Concerns

The company is continuously facing intense competition from various casinos, video lottery, gaming at taverns and other internet wagering services. Not only gaming services, but any form of leisure and entertainment activities including shopping, athletic events, television and movies, concerts, and travel put the company under competitive pressure.

Going forward, since the company’s operations are widespread, weather-related downturns affect its revenues and profitability. Having most of its properties located by water bodies, the company is vulnerable to flood and other natural disasters.

Key Picks

Some better-ranked stocks from the same space include The Stars Group Inc. (TSG - Free Report) , Churchill Downs Inc. (CHDN - Free Report) and PlayAGS, Inc. (AGS - Free Report) . While The Stars sports a Zacks Rank #1 (Strong Buy), Churchill and PlayAGS carry Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Shares of The Stars have gained 60.5% in the past six months.

Churchill and Play have impressive long-term earnings growth rate of 20% and 12%, respectively.

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