Penn National Earnings Improving Despite Tumbling Share Price

Simply because a stock’s price is sliding that doesn’t mean the company can’t generate increasing earnings per share (EPS). Penn National Gaming (NASDAQ:PENN) is a prime example of this scenario.

Penn National Gaming
Penn National Gaming
A slide from a Penn National Gaming investor presentation. The stock is getting cheap while earnings are rising. (Image: Penn National Gaming)

Credit Suisse recently screened S&P 500 member firms for names with the combination of faltering share prices, declining valuations and improving earnings. Penn National made the cut and is the only gaming name among the 25 stocks highlighted by the bank.

While the median company has seen their stock price fall -24.4% since its peak, the median P/E multiple fell -27.5%,” strategist Jonathan Golub wrote in a recent client note. “This difference is explained by a healthy 3.3% increase in projected EPS.”

Like other casino stocks, Penn is a travel and leisure equity, placing it in the consumer discretionary sector. That’s one of the worst-performing groups this year as highlighted by Penn’s 37.74% year-to-date decline. Fortunately, as Credit Suisse notes, earnings are improving among consumer cyclical names.

“On a median basis, all 11 sectors have experienced an improvement in their earnings prospects. This disparity is most extreme for tech shares where the median valuation has fallen -35.7%, while earnings prospects have improved by 8.0%,” adds Golub.

Penn Particulars

Penn, the largest regional casino operator, is undoubtedly battered. This year, that’s unusual among gaming equities.

Despite nearly wholesale selling across the gaming stock spectrum in 2022, not all constituents in the space are offering value. Penn appears to be an exception. Following a drawdown of 78.6%, the casino stock’s price-to-earnings ratio collapsed by almost 81%, according to Seeking Alpha.

Based on those metrics, Penn experienced the biggest drawdown and largest P/E ratio decline among the 25 S&P 500 components mentioned by Credit Suisse.

Some analysts view the casino company’s strong first-quarter results as impressive when considering that period is usually seasonally weaker than the June and September quarters.

Potential Penn Catalysts

While the broader casino equity landscape is moribund for now and negative seasonality could weigh on the group over the near-term, Penn could have some positive surprises in store for investors as the back of 2022 unfolds.

Penn’s margins look conservative and that the operator’s mini-casinos in its home state of Pennsylvania are topping expectations and some analysts view the operator as offering more attractive risk/reward relative to rivals.

Penn’s online business, which includes Barstool Sportsbook, is a critical driver for the stock and that could prove all the more useful if the theScore Bet grows market share in Ontario, Canada. Earlier this year, the operator forecast a 2022 digital loss of $50 million, well below the original estimate of $80 million.

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