Penn National Gaming (PENN) Down 7.4% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Penn National Gaming (PENN). Shares have lost about 7.4% 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 catalysts.

Penn National Lags Q3 Earnings & Revenue Estimates

Penn National reported results for the third quarter of 2018, with earnings and revenues missing the Zacks Consensus Estimate.

Adjusted earnings of 38 cents per share missed the Zacks Consensus Estimate of 43 cents by 11.6%. In fact, earnings decreased a significant 95.5% year over year owing to weakness in Illinois and Mississippi jurisdictions.

Net revenues of $789.7 million lagged the consensus mark of $807.9 million by 2.2% and also declined 2% from the year-ago quarter.

Inside the Headlines

Penn National’s income from operations in the reported quarter totaled $155.8 million, up 8.4% from the prior-year quarter. Adjusted EBITDA increased 2% from the year-ago quarter to $229.7 million. Adjusted EBITDA margin increased 115 basis points to 29.1%, with 17 of the 23 gaming operations recording improved margins.

Traditional net debt ratio declined to 1.77 while gross and net leverage — including master lease obligations — declined to 5.17x and 4.90x, respectively.

Fourth-Quarter and Full-Year Guidance

For the fourth quarter, net revenues are expected at $1.14 billion, reflecting a 49.4% rise from the year-ago quarter. Full-year revenues are expected at $3.58 billion, up from the previously anticipated $3.21 billion. Revenues are projected to rise 13.8% year over year.

Adjusted loss for the fourth quarter is predicted at 40 cents, showing an improvement from loss of $3.72 in the fourth quarter of 2017. Meanwhile, earnings for 2018 are anticipated at 90 cents, down from the previous guidance of $1.75. Moreover, earnings are projected to fall 82.2% year over year.

Other Developments

As of Oct 15, the company completed the acquisition of Pinnacle Entertainment which helped it expand its diverse portfolio to 40 gaming, entertainment and racing properties across 18 jurisdictions.

Meanwhile, the company expects the acquisition of the Margaritaville Resort Casino in Louisiana to close by the end of this year.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -179.1% due to these changes.

VGM Scores

Currently, Penn National Gaming has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 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

Penn National Gaming has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.

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