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Penn National Gaming (PENN) Down 11.6% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Penn National Gaming (PENN). Shares have lost about 11.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Penn National Gaming due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Penn National Reports Narrower-Than-Expected Loss in Q4

Penn National delivered better-than-expected results in fourth-quarter 2018. The company incurred adjusted loss of 37 cents per share, narrower than the Zacks Consensus Estimate of a loss of 40 cents. This better-than-expected result can be attributed to contributions from the Pinnacle acquisition as well as robust performance of the same-store portfolio of properties.

Net revenues totaled $1,155.3 million, which exceeded the consensus mark of $1,152 million and also surged 50.2% from the year-ago quarter number.

Inside the Headlines

Penn National’s income from operations in the fourth quarter totaled $124.4 million, up from $26.8 million registered in the prior-year quarter. Adjusted EBITDAR increased 62.7% from the year-ago quarter to $323.9 million. Also, adjusted EBITDA margin expanded 210 basis points to 28%, with 17 of the 23 gaming operations recording improved margins.

Meanwhile, traditional net debt ratio declined to 3.12x, and gross and net leverage — including master lease obligations — decreased to 6.12x and 5.87x, respectively.

Other Financial Information

Cash and cash equivalent at the end of the quarter increased to $479.6 million compared with $278 million at the end of Dec 31, 2017. Further, bank debt as of Dec 31, 2018, was $1,907.9 million, up from $730.8 million.

Additionally, the company repurchased 2,299,498 shares at an average price of $21.74 for $50 million. The company also approved a fresh $200 million stock repurchase program.

First-Quarter and 2019 Guidance

For the first quarter, net revenues are expected to be $1,301.4 million, reflecting a 59.5% rise from the year-ago quarter. Full-year revenues are anticipated to be $5,207.7 million, up from the previously anticipated $3,587.9 million. Revenues are projected to rise 45.1% year over year.

Adjusted earnings for the first quarter are predicted to be 40 cents compared with 48 cents registered in the prior-year quarter. Meanwhile, earnings for 2019 are anticipated to be $1.37, down from 2018 figure of 93 cents.

Other Developments

In January, Penn National Gaming announced that it completed acquiring the operations of Margaritaville Resort Casino in Bossier City, LA. In line with this, the company also announced that it signed a triple net lease agreement with VICI Properties Inc. (VICI) to manage the Margaritaville facility.

Markedly, the acquisition is part of Penn National’s continual efforts to enhance shareholder value as these are expected to boost free cash flow. Further, the company expects to see a diversified revenue stream, resulting from these buyouts.

The purchase price of Margaritaville amounted to $115 million and represented a multiple of roughly 5x of expected trailing 12-month adjusted earnings before interest, taxes, depreciation, amortization (EBITDA), and management fee for the period ended on Dec 31, 2018. Penn National expects the multiple to be below 4.5x, stemming from operating synergies and cost savings.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted -15.61% due to these changes.

VGM Scores

Currently, Penn National Gaming has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision has been net zero. Notably, Penn National Gaming has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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