Penn National Gaming (NASDAQ:PENN) stock is off year-to-date. Stock in the operator of 41 casinos across 19 states is down 15% since the start of 2021. 2020 was a tough year for analysis because the pandemic skewed comparisons across industries.
So, while PENN stock performed admirably – rising 226% in 2020 – it may be wise to look back at 2019 to judge the stock’s merits now.
I’d suggest that when Penn National Gaming releases Q2 earnings on Aug. 5 that its share prices should rise.
Q1 Showed Stagnation
InvestorPlace colleague Josh Enomoto touched on the idea of utilizing the years 2019 and 2021 as bases for comparison for PENN stock.
A few weeks ago he stated that : “In the first quarter of 2021, Penn generated revenue of $1.27 billion, up sequentially 24% and up year-over-year 14%. Usually, such percentage gains would spell good things for the delivering company.However, the problem for Penn is that the Q1 2021 results aren’t that impressive from a pre-pandemic perspective. For instance, in Q1 2019, the company generated revenue of $1.28 billion. Therefore, it’s on pace to deliver numbers we’ve already seen, which wasn’t exactly what investors were hoping for.”
That stagnation has contributed to a decline in PENN share prices since their May 6 announcement. Stock prices have declined from $83 to $68 since then. That means investors should keep a keen eye on early August to potentially make money on Penn National Gaming.
Q2 Earnings Could Be a Boon
Again, the idea is that 2019 and 2021 are accurate points of comparison for judging PENN stock. If that’s true then the company’s recent mid-point guidance for Q2 earnings should send prices higher soon.
It stated that:
“The midpoint of our expected revenue and Adjusted EBITDAR ranges reflect a quarterly sequential improvement of 18 percent and 25 percent, respectively, and Adjusted EBITDAR margin improvement of 220 basis points. When compared to the three months ended June 30, 2019, we expect revenue, Adjusted EBITDAR, and Adjusted EBITDAR margin to increase by 10 percent, 32 percent, and 625 basis points, respectively.”
That is just one factor, however. Nevertheless, if revenues do increase by 10% then investors could see PENN stock move up sharply. If we continue with this bullish thesis for Penn National Gaming, then what are some other catalysts?
Reopening
The U.S. continues to ebb and flow in its efforts to reopen. And as that goes so too goes Penn National Gaming. It is impossible to predict when the company’s locations will reach full capacity across the 19 states of operation. However, it’s safe to say that a corner has been turned.
Online sports betting continues to grow as states open up. The Supreme Court struck down the ban on single-game wagering in 2018 and there’s now a patchwork of state-by-state regulatory environments. It’s safe to say more states will open their borders in coming years as well. Penn national Gaming will ostensibly be able to capitalize on this through its 36% ownership position in Barstool Sports.
Fundamental Improvements
Penn National Gaming is a stronger operator even if its revenues were slightly down in Q1 2021 compared to Q1 2019. Although revenues were largely identical in the two periods the company was clearly stronger in Q1 2021. It derived a net gain of $90.9 million in that quarter but only $41.0 million in Q1 2019 on nearly identical revenues.
All of this points to a reasonably strong bullish thesis for PENN stock in the coming weeks as Q2 earnings approach. Those results will be important but in any case the longer term trajectory is clear.
There’s plenty of reason to believe there is growth ahead and that shares can retrace former highs. There’s plenty to suggest, as Wall Street’s analysts do, that PENN shares could eclipse $100 in the future. If that occurs, investors who get in now will be very happy indeed.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
