3 Reasons Why Penn National Gaming Is On The Way To Succeed
The train to legalize regulated American sports gambling has left the station. New sports seasons now bring with them new betting programs created and refined by state governments. Mobile betting books are rapidly being set up across the country to meet the growing demand.
With the coronavirus having such a drastic effect on state budgets, this momentum has no reason to slow down. It seems that many states in our country are finally facing their lack of control over sports betting and are deciding that they might as well take tax revenue from ongoing transactions.
Some investors are keen to participate in this move towards acceptance of the sports game. A flyer like DraftKings Inc. (NASDAQ: DKNG), with its impressive growth and popular platform, is a choice for investors who wish to participate in the stock. Penn National Gaming (NASDAQ: PENN), however, may be the best option for three compelling reasons.
1. A return to sport
It is clear that there will be a possible return to organized sports, which have been cut off to help slow the spread of the coronavirus pandemic. For Penn National to be successful, these sports have to be replayed and people will have to watch. All the available evidence suggests that these two things will happen.
Recent sporting events from NASCAR, UFC, professional golf leagues and the NFL have all broken audience records and betting activity has also increased dramatically. This is great news for Penn National. Any adherence to this trend generates high margin revenue for all legal gaming entities. With sports books in every Penn National Gaming casino property and significant investments made to grow its sports gaming platform, the return of live sports is certainly a welcome site for Penn. These company-specific catalysts only increase my optimism about the action.
2. Penn National’s Secret Weapon
When the sport finally returns, Penn National’s new Barstool Sports partnership will be a big boost to operations. Barstool is a hugely popular sports and pop culture blogging company with tens of millions of loyal and passionate sports followers. Penn National acquired the 50% rights to Barstool for a valuation of $ 450 million.
Later this year, the combined entity will re-release its bookmaker as Barstool Sportsbook to take advantage of the massive audience. Players will be able to access the platform online or in person at a Penn National gaming facility. This partnership creates an omnichannel approach to gaming that could generate real revenue growth. The bar stool will be the key for Penn National to more effectively capture market share in a competitive landscape that includes powerful players like DraftKings and MGM. The revamped book will feature in-game betting and all the personalities that make Barstool ubiquitous with sports fans, and it will provide an impressive growth story in the game as a whole.
3. Diverse gaming footprint
Penn National’s diverse financial exposure is also attractive. At the top of the release of its first quarter results in early May, the company states in bold: “Penn will benefit from the most diverse regional gaming footprint in the country. No state generates more than 15% of the company’s revenue. Penn’s lack of dependence on a specific region frees him from over-reliance on a single state. If a hurricane, racial tensions or a pandemic forces an area to shut down temporarily, Penn is well positioned to endure.
Coronavirus outbreaks in the northeast and the west coast were more severe than the rest of America. Investors should feel more comfortable when a company’s assets are distributed like Penn’s. CEO Jay Snowden’s business has a presence in regions such as the Midwest and the South, which are expected to benefit from the faster recovery that has already started with regard to COVID-19.
Additionally, Penn National properties in Las Vegas are located downtown, not the Strip. Snowden’s convenient tilt away from the iconic Las Vegas Strip lessens a fragile reliance on air travel: Strip casinos are more global businesses that depend on travelers from elsewhere and on traffic. international airline to drive sales. Penn National’s properties in Las Vegas tend to attract more regional customers who are more likely to visit its facilities, which has helped as demand for flights amid COVID-19 has been drastically reduced.
Stay in power and value
These three features of Penn’s business model are expected to provide favorable winds for the stock’s growth, but the company must first weather the fallout from the coronavirus to take advantage of it. I am convinced they can. Snowden recently seized some leeway for liquidity, successfully launching a $ 500 million convertible bond hike to bring its cash position to over $ 700 million. The interest rate is 2.75%, which isn’t too bad compared to some cruise lines that pay 10% or more on their lines of credit.
The company’s cash consumption stands at $ 83 million per month with zero sales, giving it a nine-month margin for a sales rebound. But a rebound could come sooner. On May 20, Penn announced the reopening of 25% of its regional gaming assets with further openings expected in the coming weeks. Las Vegas casinos also opened last week in limited capacity. On this basis, a nine month zero sell scenario is unlikely, suggesting that Penn National Gaming has the power to stay.
Based on the pre-coronavirus results, Penn National shares were trading at a P / E ratio of about 17 and at seven times operating cash flow. Both are cheaper reviews than the S&P 500 overall (currently at a P / E ratio of 23).
When the gaming industry breaks through this health and economic crisis, Penn’s future looks bright. Its physical facilities are in the right places, and Barstool Sports is a powerful catalyst for taking part in a young sports gaming industry. Even with the recent run the Penn National Gaming stock has seen (it was trading near all-time highs on June 4 and has recouped almost all of its coronavirus-related stock price decline), I’m a buyer at long term.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.