Don’t Bet on Penn Stock Going Into Q2 Results

Penn National (NASDAQ:PENN) stock is already trading more than 25% below its high. Reality is set to take another huge chunk from PENN stock after the company reports its second-quarter results. According to Yahoo Finance, Penn is expected to report its Q2 results between July 30 and Aug. 3.

Don't Bet on PENN Stock Until Casinos Start to Level Out
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Source: Casimiro PT /

In April and May, the company’s casinos were closed as the U.S. was locked down. Last month, the majority of Penn’s casinos were opened. However, on June 19, Penn’s CEO reported that “more than 70%” of its “properties” in the country were opened. In other words, nearly two-thirds through the month of June, more than 20% of Penn’s locations were still closed.

As a result of these closures, investors can expect the company’s second quarter results to feature very little revenue and huge bottom-line losses.

Layoffs Don’t Bode Well for Penn’s Earnings

As I noted in a column last month on Eldorado Resorts (NYSE:ERI), Penn ” announced that it may… permanently lay off 233 of its employees.” Further, I noted that, in the letter in which it had disclosed the potential layoffs, Penn “apparently did not commit to bringing back any of the 26,000 employees it had furloughed in April.” The employees who may be laid off work at Penn’s offices near Reading, Pennsylvania and in Las Vegas.

Unfortunately, hundreds more of Penn’s employees are poised to lose their jobs soon. On July 7, a local CBS station reported that Penn intends to lay off “nearly 1,150” of its employees who work for casinos in Louisiana. The station reported that Penn notified the state informing it of the impending layoffs.

The latest job cuts indicate that Penn’s reopening is not going well in Louisiana. In recent weeks, the number of new daily novel coronavirus cases in Louisiana increased to about twice the level that the state was reporting in May.  Still, Louisiana’s daily deaths have remained quite low, and it’s not usually mentioned in media reports as being one of the worst states recently.

A Sign Casinos Are Struggling?

So Penn’s decision to lay off hundreds of its employees could indicate that only its business in Louisiana is slow. Or Louisiana may not be an outlier, and Penn could lay off workers in other states soon. In other words, there’s a good chance that the job cuts in Louisiana indicate that many of Penn’s casinos throughout the country are struggling.

I would bet on the latter scenario. As I’ve noted previously, in my experience, the gamblers at regional casinos tend to be meaningfully older than those in Las Vegas. And, Penn confirmed that “most of the people who visit its physical casinos are not young.

As a result, with Covid-19 still spreading, many of Penn’s most lucrative, older customers will likely opt for other activities. That’s especially likely to be the case when the weather is warm and outdoor activities are appealing.  That dynamic doesn’t bode well for the company’s Q2 results or its Q3 guidance.

Sports Betting Won’t Rescue PENN Stock in Q2

Of course, none of the major American professional sports leagues was in action in Q2. As a result, Barstool, the online sports betting business in which Penn obtained an 36% stake, is not going to meaningfully boost the casino owner’s Q2 results.

Further, Penn has indicated that  it doesn’t anticipate that its digital properties, including Barstool, will move the needle of its results this year.

Consequently, even if Penn optimistically assumes that Barstool will do well for the rest of this year, it is unlikely to have a major impact on Penn’s overall guidance.

The Bottom Line on PENN Stock

Penn’s Q2 results will be dismal, and its upcoming layoffs in Louisiana suggest that its reopening is not going well.

Meanwhile, its sports-betting subsidiary will not have a meaningful positive impact on its 2020 guidance. Given these points, I recommend that investors sell PENN stock ahead of the company’s Q2 results.

Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer. As of this writing, he did not own any of the aforementioned securities.

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