How Penn National Gaming’s Stock Managed to Climb on Bad News

At first glance, the novel coronavirus pandemic couldn’t have been more ominous to Penn National Gaming (NASDAQ:PENN). A little over a month before the outbreak became a full-blown crisis, management announced it had acquired a 36% interest in Barstool Sports, the popular sports and popular culture blog. For approximately $163 million, the terms seemed very favorable for PENN stock over the long term.

How PENN Stock Managed to Climb on Bad News

Source: Casimiro PT / Shutterstock.com

Of course, the coronavirus had other plans. What started as regionalized emergencies blew up into a national emergency. To protect both players, employees and fans, professional sports leagues in the U.S. and throughout the world made the painful decision to shut down. Most shocking of all was that the 2020 Summer Olympics also fell victim, with organizers postponing the tournament to 2021.

Obviously, without sports, the whole idea of a sports blog became almost completely irrelevant. And that evaporated Penn National’s plans to quickly profit from Barstool’s multiple synergies. Hence, not too many folks were willing to bet on PENN stock during the peak of the panic.

However, I urged investors to focus on the bigger picture. Historically, health-related crises are temporary events. Sure enough, PENN stock gained tremendous upside momentum in the second half of March. As shares ticked higher, so did the collective urge to regain normalcy.

One by one, sporting events returned to fill a critical void. From Nascar to Indycar to even the NFL draft, fans tuned in. Better yet, when Nascar returned following its coronavirus-disrupted season, it did so by attracting big numbers, particularly in the influential 18 to 34 years demographic.

This suggested that the stock car racing league gained new fans, which had previously struggled for relevancy.

Why the Coronavirus Was Great News for PENN Stock

In a strange way, then, the pandemic may have been the best thing that’s happened to Penn National Gaming. Technically, there’s no arguing the point: PENN stock is well into double-digit percentage territory for the year so far.

Nevertheless, I find the fundamentals in this case far more compelling. Prior to this crisis, we lived in a very saturated entertainment environment. From streaming to movie theaters to video games, we had no shortage of platforms. When it came to sports, we have multiple channels within the ESPN and Fox Sports umbrellas, each covering major domestic and international sports.

If you’re a sports fanatic, there has never been a better time to be alive. But the saturated competition posed potential problems for Penn National. Not anymore. While other platforms like streaming were unaffected, sports suffered a hard stop. Thus, we have pent-up demand like we’ve never seen before.

For example, consider that the NFL draft’s three-day event reached more than 55 million viewers, representing a huge leap from the 2019 draft. As we head into the fall when the actual NFL season opens, we’ll likely see record-breaking demand, if recent history is any indication. Of course, this bodes very well for PENN stock.

Further, the underlying economy is surprisingly beneficial to Penn National’s ambitions. While the mainstream media focuses on the headline double-digit unemployment rate, this joblessness metric for college-educated adults 25 years and older is in the single digits.

Essentially, white-collar workers have been largely insulated from the coronavirus impact. And that has always been the target audience for both PENN and Barstool. You can’t build gambling synergies with a consumer base that has no money.

This harsh reality is also why PENN stock has performed remarkably well in the face of otherwise terrible news.

An Underappreciated Catalyst for the Sports Gambling Industry

According to data collected by Lytx, a video telematics company, a correlation apparently exists between Monday Night Football games and Tuesday morning crashes for truck drivers. Maybe that’s so. However, I’ve always wondered if accidents don’t spike up as people are trying to rush home to watch the game.

Either way, the new normal should be a net positive for multiple parties. First, for truck drivers and non-sports fans that are on the road and second, for the worker bees darting in traffic to get home.

That’s because the coronavirus completely changed how we view work. Out of nowhere, every organization had to implement remote operation for mere survival. But moving forward, companies like Twitter (NYSE:TWTR) will discover the myriad benefits of a remote employee base; namely, lower overhead, worker satisfaction and potentially increased productivity.

Over the long run, this should have significantly bullish implications for PENN stock. With people being able to pull in a white-collar salary combined with extra personal time, there are more opportunities for sports viewing and therefore, sports gambling.

From this angle, Penn’s deal with Barstool doesn’t look like a bad one. Indeed, it may turn out to be one of the most fortuitous in recent memory.

Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.


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