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Penn National (PENN) Reports Narrower-Than-Expected Q4 Loss

Penn National Gaming, Inc. PENN 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 results can be attributed to contributions from the Pinnacle acquisition as well as robust performance of 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.

Following the quarterly results, not much movement was witnessed the company’s share price. However, Penn National has lost 17.3% compared with the industry’s 9.54% decline in the past six months.

Let us take a closer look at the numbers.

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.

Penn National Gaming, Inc. Price, Consensus and EPS Surprise

Other Financial Information

Cash and cash equivalent at the end of 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 were $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.

Zacks Rank & Other Stocks to Consider

Penn National carries a Zacks Rank #2 (Buy). Other favorably-ranked stocks worth considering in the same space include Churchill Downs Incorporated CHDN, PlayAGS, Inc. AGS and Red Rock Resorts, Inc. RRR, each carrying the same rank as Penn National. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Churchill Downs has reported better-than-expected earnings in the training three quarters.

PlayAGS long-term earnings is likely to grow by 12%.

Shares of Red Rock Resorts have surged 11% in the past six months.

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