Shares of PENN Entertainment, Inc. (PENN) have experienced a significant decline of 28.5% year-to-date, contrasting with the Zacks Gaming industry’s 7.3% growth and the S&P 500’s rise of 19.6%. This underperformance compared to other industry players like DoubleDown Interactive Co., Ltd. (DDI), PlayAGS, Inc. (AGS), and Red Rock Resorts, Inc. (RRR) raises questions about the stock’s future trajectory.
Currently trading below both the 50- and 200-day moving averages, PENN’s stock reflects weaker performance against recent trends. Although the company is implementing positive initiatives – including enhanced top-of-funnel growth, effective risk management, and refined promotional strategies – the stock’s position below these key moving averages remains a concern.
Despite reporting decent second-quarter 2024 results, with earnings and revenues exceeding the Zacks Consensus Estimate, PENN’s top and bottom lines declined year-over-year. This decline can be attributed primarily to disappointing performance in its South and Interactive segments. The South segment faces increased competition and challenges from severe weather events, while the Interactive segment is grappling with reduced food, beverage, hotel, and other revenues, despite a slight increase in gaming revenues. The company is also facing significant challenges with its margin performance, as the adjusted EBITDAR declined 23% year-over-year due to higher marketing expenditures and rising costs.
However, PENN’s growth prospects are not entirely bleak. The company has demonstrated impressive performance in the gaming segment, with gaming revenues increasing 3.1% year-over-year in the second quarter. This growth was 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.
Furthermore, PENN’s emphasis on sports betting through ESPN BET is driving significant growth in its digital database and active user base, laying a strong foundation for future expansion. The company’s retail segment remains resilient, supported by stable consumer trends, a diverse product range, and recent capital investments. During the second quarter, 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.
Analysts are showing confidence in the stock, as indicated by recent upward revisions in earnings estimates. Over the past 30 days, the Zacks Consensus Estimate for loss per share has narrowed for 2024, and analysts have increased their estimates for 2025. Despite ongoing challenges, 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.
