Just because a inventory’s worth is sliding doesn’t imply the corporate can’t generate rising earnings per share (EPS). Penn Nationwide Gaming (NASDAQ:PENN) is a chief instance of that situation.
Credit score Suisse just lately screened S&P 500 member companies for names with the mix of faltering share costs, declining valuations, and enhancing earnings. Penn Nationwide made the minimize and is the one gaming identify among the many 25 shares highlighted by the financial institution.
Whereas the median firm has seen their inventory worth fall -24.4% since its peak, the median P/E a number of fell -27.5%,” strategist Jonathan Golub wrote in a current shopper notice. “This distinction is defined by a wholesome 3.3% improve in projected EPS.”
Like different on line casino shares, Penn is a journey and leisure fairness, putting it within the client discretionary sector. That’s one of many worst-performing teams this yr, as highlighted by Penn’s 37.74% year-to-date decline. Happily, as Credit score Suisse notes, earnings are enhancing amongst client cyclical names.
“On a median foundation, all 11 sectors have skilled an enchancment of their earnings prospects. This disparity is most excessive for tech shares the place the median valuation has fallen -35.7%, whereas earnings prospects have improved by 8.0%,” provides Golub.
Penn, the most important regional on line casino operator, is undoubtedly battered. This yr, that’s uncommon amongst gaming equities.
Regardless of practically wholesale promoting throughout the gaming inventory spectrum in 2022, not all constituents within the area are providing worth. Penn seems to be an exception. Following a drawdown of 78.6%, the on line casino inventory’s price-to-earnings ratio collapsed by virtually 81%, in response to In search of Alpha.
Primarily based on these metrics, Penn skilled the largest drawdown and largest P/E ratio decline among the many 25 S&P 500 parts talked about by Credit score Suisse.
Some analysts view the on line casino firm’s sturdy first-quarter outcomes as spectacular when contemplating that interval is normally seasonally weaker than the June and September quarters.
Potential Penn Catalysts
Whereas the broader on line casino fairness panorama is moribund for now and destructive seasonality might weigh on the group over the near-term, Penn might have some optimistic surprises in retailer for buyers because the again of 2022 unfolds.
Penn’s margins look conservative and the operator’s mini-casinos in its dwelling state of Pennsylvania are topping expectations. Some analysts view the operator as providing extra enticing danger/reward relative to rivals.
Penn’s on-line enterprise, which incorporates Barstool Sportsbook, is a essential driver for the inventory, and that might show all of the extra helpful if the theScore Guess grows market share in Ontario, Canada. Earlier this yr, the operator forecast a 2022 digital lack of $50 million, properly under the unique estimate of $80 million.