PENN Entertainment Stock Falls 29% YTD: Buy the Dip or Wait?

Shares of PENN Entertainment, Inc. PENN have moved down 28.5% year to date against the Zacks Gaming industry's 7.3% growth and the S&P 500's rise of 19.6%.

The company also underperformed other industry players like DoubleDown Interactive Co., Ltd. DDI, PlayAGS, Inc. AGS and Red Rock Resorts, Inc. RRR, which surged 98.1%, 34.3% and 9.3%, respectively, in the said period. The substantial decline in PENN's shares raises questions about whether it is the right time to buy at a lower price or if investors should hold off until the stock shows signs of stabilization.

Image Source: Zacks Investment Research

PENN Stock Trades Below 50- & 200-Day Moving Averages

Image Source: Zacks Investment Research

PENN is currently trading below the 50- and 200-day moving averages, indicating weaker performance compared to recent trends. Although the company is making notable progress through various positive initiatives — such as enhanced top-of-funnel growth, effective risk management and refined promotional strategies — the stock's position below these key moving averages raises concerns.

What's Hurting PENN's Performance?

In spite of reporting decent second-quarter 2024 results — with earnings and revenues exceeding the Zacks Consensus Estimate by 33.3% and 1%, respectively — the top and the bottom line declined year over year. The downtick was primarily due to disappointing performance in its South and Interactive segments.

The company is grappling with a dismal performance in its South segment due to increased competition and severe weather events affecting operations. PENN's Interactive segment is facing challenges with reduced food, beverage, hotel and other revenues despite a slight increase in gaming revenues. Increased marketing expenditures in the Interactive segment, along with higher labor and gaming costs, are a concern.

The company is facing significant challenges with its margin performance. During the second quarter, the adjusted EBITDAR declined 23% from the year-ago level to $367 million. The adjusted EBITDAR margin contracted to 22.1% from 28.5% a year earlier. The downtick highlights current operational challenges and cost pressures. PENN is apprehensive about an uncertain economic environment, which could continue to affect performance in the near term.

PENN's Growth Prospects

Robust Gaming Performance: PENN has demonstrated impressive performance in the gaming segment. The company's recent results highlight significant growth and resilience driven by increased consumer demand and successful operational strategies. In the second quarter, gaming revenues increased 3.1% year over year to $1.3 billion. This upside was primarily driven by increased gaming revenues in the Interactive segment and higher slot revenues in Northeast, Midwest and West segments. The Interactive segment benefited from top-of-funnel growth, better risk and trading execution, refined promotional strategies and a favorable sportsbook hold.

Emphasis on Sports Betting: The company is enhancing its iCasino product by adding new game titles from PENN Game Studios and expanding third-party content while strengthening its promotional offerings. By early 2025, it plans to launch its first standalone iCasino app, which will capitalize on the Hollywood brand and its extensive casino database.

ESPN BET (the Sportsbook) continues to drive significant growth in the digital database and active user base, setting a strong foundation for future expansion. During the second quarter, monthly active users increased more than 138% year over year. Improved risk and trading execution, along with a higher parlay mix, contributed to increased hold rates.

Key Properties Driving Market Share Growth: Its retail segment remains resilient, bolstered by stable consumer trends, a diverse product range and recent capital investments that mitigate the impact of increased market supply. During second-quarter 2024, PENN observed notable market share growth in Ohio, Maryland and Iowa. Flagship properties like Hollywood Casino at Greektown and M Resort in Las Vegas continued to show strong performance.

During the quarter, the company saw significant revenue and market share growth at its downtown Detroit property due to recent hotel room renovations and the launch of the first ESPN BET retail sportsbook. On April 25, 2024, the company opened the ESPN BET retail sportsbook, featuring a multi-day NFL event at Greektown, which included live draft coverage by ESPN personalities. Revenues from the property increased more than 6.5% year over year, and market share expanded 90 basis points from the previous year's tally.

The company's Ohio properties have shown strong year-over-year growth on the back of current investments, including updated casino floors, expanded high-limit areas, top-tier sportsbooks and new food and beverage options. The Columbus property stands out as a top performer, with notable developments such as the ongoing hotel project and the upcoming ESPN BET sportsbook rebranding.

Positive Estimate Revisions for the Stock

Analysts are showing confidence in the stock, as indicated by recent upward revisions in earnings estimates. In the past 30 days, the Zacks Consensus Estimate for loss per share has narrowed to $1.37 from $1.39 for 2024. Over the same time frame, analysts have increased their estimates for 2025 by 11.5% to 68 cents.

Image Source: Zacks Investment Research

Buy, Sell, or Hold – PENN

The Zacks Rank #3 (Hold) company faces several challenges despite making progress through positive initiatives. The company is encountering difficulties in the South and Interactive segments, with increased competition and operational issues impacting performance. Additionally, higher marketing expenditures and rising costs are affecting profitability.

However, PENN is making strides with enhanced top-of-funnel growth, effective risk management and refined promotional strategies. The retail segment remains resilient, supported by stable consumer trends and recent capital investments. Expansion efforts and improvements in technology are also notable. While current challenges persist, these efforts suggest that holding the stock is advisable for existing investors. New investors should monitor developments before making a decision.

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