Penn gets vote of confidence

August 9, 2022 3:47 PM
  • David McKee, CDC Gaming Reports
August 9, 2022 3:47 PM
  • David McKee, CDC Gaming Reports

Jefferies Equity Research analyst David Katz belatedly weighed in on Penn Entertainment’s second-quarter earnings and found that they “reflect resilience in regional gaming amid noise of a pull-back in broader consumer discretionary trends.” This was, he continued, consistent with Penn’s coevals in the gaming industry, indicative of poise under pressure with regard to cost containment and a “rational” promotional strategy.

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On the digital side of the coin, Katz believes Penn is gaining traction in Ontario, thanks to the pre-existing (gray-market) presence of its theScore subsidiary. Sticking with his “Buy” rating, Katz said, “we expect the company to continue to execute.”

While Katz had expected Penn to come in just under $1.6 billion in quarterly revenue, the company exceeded that benchmark with $1.63 billion and its $504.5 million of EBITDAR (earnings before interest, taxes, depreciation, amortization, and rents) was well ahead of what Katz had forecast ($492.4 million). For the 2022 fiscal year, Penn stands by its predictions of revenue as high as $6.55 billion and adjusted EBITDAR of up to $2 billion. “These are in line with our existing forecasts and consensus, which should have limited impact on the shares,” Katz wrote.

Penn surpassed Katz’s 2Q22 prognostications in all regions except the South (where it is heavily exposed to the declining Louisiana market), in which Katz expected $352.9 million in revenue and Penn delivered $338.6 million. Negative return on investment (ROI) in the digital segment was greater than anticipated, $20.8 million against Katz’s $16.5 million.

This was ameliorated by better-than-anticipated online revenues of $154.9 million, where Katz had forecast $143.3 million. The negative online ROI was also minuscule compared to that of most other major gaming companies in the digital sphere.

Familiar themes pervaded the earnings call, with Baby Boomers described as continiuing to keep their distance from casinos, 20 percent lower than in pre-pandemic days. Also, younger-player demographics continue to grow year over year.

Sports betting was a source of additional optimism, with Penn executives expecting to lock up double-digit market share with theScore in Ontario. The launch of sports betting in Massachusetts, where Penn is guaranteed entry to the market thanks to its Plainridge Park racino, is anticipated to occur online early in 2023, with brick-and-mortar sportsbooks envisioned to be on tap later this year.

The only cloud on the horizon is a larger negative ROI on digital gaming next quarter, with Penn hitting breakeven by year’s end.