Penn National Gaming (NASDAQ:PENN) started life as a horse racing track. How then did PENN stock become a hot name in 2020?
It emerged in the 21st century as a big player in casinos around the country, splitting out the real estate into another company called Gaming & Leisure Properties (NASDAQ:GLPI).
Penn National is a play on the idea that people want to throw their money away close to where they live. As such, life was good. It was worth nearly $5 billion before the novel coronavirus knocked the pins out from under its fun and games.
But you can’t keep a good gamer down. Penn National thinks it can recover before its peers with online gambling, both traditional casino games and sports betting. It is also putting $163 million into Barstool Sports, a sports and culture blogging site that also covers day trading. Smell the testosterone!
Is Penn National Really Different?
Penn National claims to be a different kind of gaming company, but its performance in 2020 is similar to that of peers like Wynn Resorts (NASDAQ:WYNN) and Las Vegas Sands (NYSE:LVS). The stock is down 23% for the year, having fallen to $3.75 per share in March.
Penn’s rise and fall have both been spectacular. At its opening price of $17.30 on May 11 it is well off its lows. A lot of the credit goes to the online operations, for which there is huge optimism.
If life gets back to normal there is a lot of upside. Revenue in 2019 came to $5.3 billion, generating a profit of $44 million or 38 cents per share. The company generated $704 million in operating cash flow in 2019, although net cash fell thanks to investments and financing.
As expected, results for the first quarter were hit hard by Covid-19. Losses totaled over $608 million, $5.26 per share, although revenue only fell to $1.12 billion from $1.28 billion in 2019. To keep operating, Penn National has raised $500 million, half new stock and half convertible debt.
In the two trading days since the earnings, Penn National has generally traded up, although it fell over 5% in the early May 11 selloff. Action goes both ways.
A Better Way Ahead?
If you like the broad geographic position of Penn National properties, there’s another way to play.
That would be Gaming & Leisure Properties.
GLPI shares are also down this year, just not by as much as PENN. In 2019, GLPI brought $390 million out of $1.15 billion of revenue to the net income line. Free cash flow had been on a steady upward trajectory before the pandemic, rising to $747 million in 2019.
As a real estate investment trust (REIT), GLPI is also required to share gains with shareholders. In 2019 that meant $2.40 in dividends, which at its current price of $28 per share is a yield of 8.6%.
No, you won’t be getting any dividends this year, at least not until those casinos open back up. But there was $560 million in cash on the balance sheet as of March, with only $141 million of debt listed as current or short term.
The Bottom Line on PENN Stock
GLPI looks well-positioned to see the other side of the pandemic. I think it offers a better investment opportunity than PENN stock, even though it doesn’t get a share of the online income.
That online opportunity, meanwhile, may be a mirage. We’re talking about an online gaming company that only operates in Pennsylvania, along with a blogging site. Blogging has a very low cost of entry, and online content prices are super low right now. I think Penn National overpaid.
If you want to take a flutter, and can afford to take a loss, consider PENN stock. If you’re an investor looking for income down the road, however, GLPI is a better bet.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.