Penn National Gaming (NASDAQ:PENN) continues to do an excellent job holding up after a monstrous rally. However, PENN stock remains vulnerable due to the novel coronavirus.
Specifically, November has been a tough month in regards to the virus. And while we have not seen the number of deaths spike to the levels that we experienced earlier in the year, the U.S. and the world is struggling to keep the virus from spreading.
The U.S. is now logging more than 150,000 cases per day, with almost every state in some sort of uncontrolled tailspin. With kids back in school, a population desensitized to the outbreak and the holidays around the corner, there is reason to assume it will get worse before it gets better.
However, it will get better — and here’s why.
Understanding the Dynamics With the Economy
With cases spiking across the world, we’re entering another phase of potential lockdowns. This will not be good for the economy, particularly as the gridlock in Washington has resulted in no stimulus package thus far. The drama surrounding the presidential election isn’t helping matters either.
We’re not getting into politics here, just facts. The fact is, lockdowns are potentially back on the table at a time where stimulus talks are going nowhere. That leaves the economy vulnerable, the consumer vulnerable and ultimately, PENN stock vulnerable.
Moreover, New York City is considering halting in-person classes for schools, and the city is beginning new curfews. Also, many parts of Europe are already in various lockdown phases. And Nevada governor Steve Sisolak “is warning Nevadans that COVID-19 mitigation measures will tighten if the state does not see improvements in cases, test positivity rates and hospitalizations.”
So, for Las Vegas, that would be bad news.
Collectively, it’s clear that state and city governments do not want to add further restrictions. It hurts businesses and the public, and the mental health strains of a lockdown are real. But so are the realities from Covid-19 as we keep things open.
It’s not a good position to be in, whether we’re talking about NYC, Vegas or Paris. But in time, this too shall pass.
PENN Stock Is a Long-Term Focus
For PENN stock, investors must realize that it will be subject to volatility — it is what it is. However, for those that can look past the day-by-day or even week-to-week action, this name has opportunity.
That can be attributed to three things: Vaccines, a return to normal and online gambling.
We’re starting to see companies make impressive progress toward a vaccine. That’s huge for getting the coronavirus under control, even if we struggle with it in the short term.
When a vaccine is available, it will likely go to the hot spots — which is seemingly everywhere right now — and those that are most vulnerable. Once it begins to rollout more broadly, though, we can really start to “get back to normal.” And for airlines, hotels, restaurants and casinos, that is all we can hope for.
However, amid the pandemic, a new shining star has come to life: online gambling.
Online sports betting has serious secular momentum behind it. A few more states legalized online sports betting during the recent election, and many more have approved it while waiting to get online operations up and running.
In fact, one analyst believes that by 2025, 96% of the country will have access to legal online sports betting. That analyst is Chad Beynon of Macquarie, who also believes that the “the US internet casinos and sports wagering markets will be worth a combined $33.7 billion in 2030, up from just $1.4 billion last year.”
Bottom Line on PENN Stock
When Penn National Gaming reported earnings in late October, earnings of 93 cents per share beat estimates by 40 cents. Revenue of $1.13 billion also beat expectations, despite slipping 16.3% year-over-year.
Given the current climate, these results are pretty impressive. And once we get out of 2020 and the first part of 2021, PENN stock and its peers should really have upside potential.
Overall, I believe 2021 will be a better year than 2020. That’s the consensus not just for Penn National Gaming, but for the world as a whole. In the meantime, though, Penn has what it takes to stand tall.
Its stake in Barstool Sports was a savvy move and will pay dividends down the road. That’s particularly true when it comes to online sports betting, as Penn now has a strong foothold in a large and growing market. And on Sept. 15, the company officially launched the Barstool Sportsbook app.
In short, I see a company that is a play on the reopening of the economy and one that has a growth outlet from Barstool Sports and online sports betting. Finally, I see a company that shored up its balance sheet — now with $1.9 billion in cash on the books — after PENN stock fell below $4 on concerns of its liquidity.
This one remains a long-term winner, even if it sees some short-term fluctuations in its stock price.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in the article.
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