Penn National Gaming Inc. (PENN, Financial) is an operator of gaming, racing properties and video gaming terminal operations in the U.S. It operates retail sports betting across the company's portfolio, as well as online sports betting, online social casino, bingo and online casinos. It offers live sports betting at its properties in Indiana, Iowa, Mississippi, Nevada, Pennsylvania and West Virginia.
Penn National has its own interactive platforms, but also has an interest in one of the most recognizable brands in digital fantasy games and sports betting – Barstool Sports. The company acquired a 36% interest in Barstool in February 2020, giving it a much-needed leap forward into the online sports betting world. In 2023, the company will pay another $62 million to raise its total stake to 50%.
Penn National Gaming operates 44 casinos and racetracks in the U.S. and Canada, many of them under the Hollywood Casino brand. Penn Interactive operates retail sports betting across the company's portfolio as well as online social casino, bingo and iCasino products.
Omni-channel offerings
The omni-channel approach with all the cross-marketing efforts has been paying off for the company. A Barstool Sports rebranded land-based sports book at a Chicago casino has shown improved financial results. Company studies have shown that customers who play across both platforms, casino and online, are far more valuable customers than those that just choose one. With the launch of online sports betting in Louisiana in January, Penn National now operates sports betting in 12 states and iCasinos in four anticipated launches in Ontario, Ohio and Maryland in 2022.
Financial results
In 2021, revenue increased 65% from 2020 levels to $5.9 billion. However, that was due to easy comparables in 2020 because of Covid-19 shutdowns. A more relevant growth statistic is comparisons to 2019, over which 2021 revenue increased 11.4%. The same circumstances apply to Ebitda growth as well. In 2021, Ebitda increased 82% compared to 2020, but increased 24% over 2019 levels.
Balance sheet and liquidity
The company ended 2021 with the strongest balance sheet in its history according to the company. Total liquidity was $2.5 billion, including $1.9 billion in cash. Traditional net debt as of year-end was $886.2 million, an increase of $841 million from $45.2 million as of Sept. 30 largely due to the acquisition of theScore. Penn National’s lease-adjusted net leverage as of Dec. 31 was reduced to 4.1 times, compared to 7.0 times as of Dec. 31, 2020 and 5.5 times as of Dec. 31, 2019.
Guru trades
Gurus that have added to Penn National positions recently include Joel Greenblatt (Trades, Portfolio) and Ron Baron (Trades, Portfolio).
Valuation
Penn National got caught up in the day trading Reddit craziness, largely due to its association with Barstool Sports, and the stock hit irrational highs of over $130 in March 2021. Currently, the stock trades $43, which is 22 times 2022 estimated earnings per share, but that encompasses some lingering effects from Covid-19 fears in the early part of this year. In addition, the company is investing heavily in online gaming efforts, which is temporarily depressing earnings. Looking forward to a more normalized year in 2023, the company only trades at 16 times forward estimated earnings per share.
Conclusion
Penn National Gaming appears to be undervalued at this time. The company offers both the stability of physical casinos and the growth associated with online gaming. With the stock selling near 52-week lows, there appears to be strong upside if the company executes well on its growth plans.
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