PENN Entertainment, Inc. (PENN – Free Report) will likely benefit from 3C initiatives, the mychoice loyalty program and the expansion of Barstool Sports. This and the focus on game development initiatives bodes well. However, an increase in operating expenses is a concern.
Let’s discuss the factors that highlight why investors should hold onto the stock for now.
Growth catalysts
PENN Entertainment continues to evolve towards the next generation of wireless, cashless and contactless technology, collectively known as 3C, to drive growth. The technology solution not only removes friction from transactions and reduces waiting time, but also strengthens its marketing capabilities. During the third quarter of 2022, the company unveiled 3C in Kansas, becoming its tenth property in four states. It also reported solid guest adoption of digital wallets, with higher visit frequency and higher gaming spend per trip. Given its strong customer acceptance and its supporting role in its omnichannel business approach, the company expects to roll out 3C technology in additional properties by the end of 2022. However, it is subject to regulatory approvals.
An increased focus on the mychoice loyalty program bodes well. With approximately 26 million members, the program offers a unique set of rewards and experiences across business channels. It allows members to earn loyalty points that can be redeemed for slot games and freebies, mychoice mall and products offered in retail stores on its properties. It also allows members to earn tier status credit, which entitles them to certain other benefits such as priority access, discounts, gifts and free play. During the quarter, the company reported growth in the mychoice database, with year-on-year rate increases across all segments. With dynamic sports books and sports bars, third-party F&B concepts, refreshed hotel products, entertainment and new technology initiatives, the company anticipates the momentum to continue in the coming periods.
PENN Entertainment continues to focus on expanding Barstool Sports in the United States. The Louisiana-based company’s Barstool sportsbooks continue to drive performance. The company also revealed that it is benefiting from Barstool Sportsbook retail, which continues to drive database growth and increase frequency of visits in younger segments. The company is confident of its long-term growth, which will be supported by a differentiated omnichannel approach. PENN Entertainment also expects growth opportunities in Ohio, New York, Texas, Massachusetts and Missouri.
The company is focusing on new game additions, creative marketing and leveraging the casino’s database to drive iCasino’s Barstool-branded business. During the third quarter of 2022, the company launched 226 new third-party slot and table game offerings on its iCasino platform. It also highlighted its iCasino custom and third-party content pipeline for both Barstool and theScore Bet. The company plans to capitalize on cross-selling opportunities from the Barstool audience derived from Penn Game Studios’ leverage and game development initiatives.
Over the past six months, shares of PENN Entertainment are up 8.3%, compared to the industry’s 2.6% gain.
Image source: Zacks Investment Research
Concerns
The company incurs higher expenses, which reduces margins. During the third quarter of 2022, the company reported higher costs associated with food, beverage, hotel, retail, rides and interactive operations. Total operating expenses during the quarter were $1,488.3 million, compared to $1,272.7 million reported in the prior year quarter. For 2022, the company anticipates capital expenditures to be approximately $300 million, of which $200 million is allocated to maintenance and $100 million is allocated to discretionary return-generating projects (including 3C, renovations of Barstool sports books and hotel room renovations).
Zacks Rank and Key Picks
PENN Entertainment currently has a Zacks Rank #3 (Hold). You can see full list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better ranked stocks in the Zacks Consumer Discretionary sector are Hyatt Hotels Corporation (H – free report), Crocs, Inc. (CROSS – Free report) and Boyd Gaming Corporation (BYD – Free report).
Hyatt currently has a Zacks Rank #2 (Buy). H has an earnings surprise of 652.3%, on average, over four quarters. The stock is up 19.6% over the past year.
The Zacks Consensus Estimate for H’s current financial year sales and earnings per share (EPS) indicate growth of 92.6% and 121.8%, respectively, from the reported levels of the year-ago period.
Crocs currently has a Zacks Rank #2. CROX has a long-term earnings growth rate of 15%. Crocs shares are down 43.7% over the past year.
The Zacks Consensus Estimate for CROX’s 2022 sales and EPS point to 51.5% and 23.7% growth, respectively, from year-ago levels.
Boyd Gaming has a Zacks Rank #2. BYD has a long-term earnings growth rate of 12.8%. The stock is up 0.3% over the past year.
The Zacks Consensus Estimate for BYD’s 2022 sales and EPS indicate growth of 4.6% and 12.7%, respectively, from the reported year-ago levels.