Looking at the chart of Penn National Gaming, the first thing that comes to mind is the folk festival hit "Auf und Nieder" (Up and Down) by the Zillertaler Schürzenjägern. Between November 2020 and March 2021, the stock price skyrocketed nearly threefold, only to give back nearly all of the increase. Currently, the S&P 500 member has found a bottom and is consolidating in the USD 65/70 range.
Stock market players still seem to be divided as to whether the casino operator has already put the pandemic to bed or whether the virus will once again put the brakes on business in the future. Last year, the Corona restrictions caused the company to slide deep into the red. The bottom line was a loss of USD 669 million, or USD 4.99 per share. On a quarterly basis, however, significant improvements are already evident. Penn National Gaming has been in the black in each of the past three periods and has even exceeded expectations twice. The consensus also expects positive earnings per share of USD 0.93 for the past second quarter. Investors will know more on August 5, when the Wyomissing-based company will publish its financial results.
In the run-up to the balance sheet presentation, Penn National Gaming already has good news for investors: On August 12, the new Hollywood Casino York will open its doors. The gaming paradise covers around 80,000 square feet and offers some 500 slot machines and 24 table games. In addition, sports betting is also available. This is a particularly high-growth area, after all, more and more states are reforming their gambling laws. Most recently, for example, Florida, Arizona and Connecticut have approved sports betting at the state level.
Penn National is diversified: The group operates or owns interests in 42 gaming properties in 20 states. In total, the company's properties have approximately 50,000 slot machines, 1,300 table games and nearly 8,800 hotel rooms. In addition, the company operates iCasinos in Pennsylvania and Michigan through a subsidiary. These are interactive gaming offerings. Online sports betting is also offered in Indiana, Pennsylvania, West Virginia and Iowa via strategic partnerships.
Also promising is the investment in Barstool Sports that Penn National made last year. The company, named after a bar stool, is among the leading digital sports, entertainment, lifestyle and media companies. The potential for engagement is huge: of Barstool's 66 million monthly active users, 44% play weekly, which adds up to just over 29 million weekly sports bettors. The Barstool sports app has since launched in Pennsylvania, Michigan and Illinois.
How Penn National stock fares in the near term will largely be determined by two events: One is the delta variant of the coronavirus, which may affect business. The other is the interim report mentioned at the outset. Penn National has set its sights on "sustainable margin improvement" and will be measured against that. For the second quarter, the company expects to increase operating margin by 220 basis points. Ultimately, it is looking at sales of USD 1.45 billion to USD 1.55 billion and operating profit of USD 540 million to USD 580 million.
After the sharp drop in the share price, the majority of analysts are once again positive about the stock ahead of the figures. Of 13 analyst studies, 9 resulted in a Buy rating. An average 12-month price target of USD 108 can be calculated from the research reports, which corresponds to a potential of more than 50%.
Even though Penn National is a gaming company, investors should by no means view the stock market as a gamble. Those unsure whether the operating rebound will continue in the coming quarters despite the increasingly rampant delta variant of the Corona virus can take advantage of the stock's high vol via new soft-callable barrier reverse convertibles. The products, which are offered in USD and CHF currencies, offer double-digit percentage return opportunities. The CHF product offers a coupon of 14.00% p.a., while the USD version offers an even slightly higher yield of 15% p.a.. Both securities have a buffer of 31%.
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