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Why Penn National Gaming Stock Is Rising Today

By Reuben Gregg Brewer - Aug 6, 2020 at 12:25PM

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Everyone knew that the casino operator's second quarter was going to be tough, but the update about the future still got investors excited.

What happened

Shares of Penn National Gaming (PENN -2.82%) are rising today, up roughly 12% as of 11 a.m. EDT, after the company reported second-quarter results. The coronavirus pandemic caused revenue and earnings to plunge, but investors seem optimistic about the casino operator's future.

So what

Penn National's revenue declined by around 75% year over year in Q2 2020. That's pretty brutal and clearly reflects the government-mandated shutdowns enacted in an attempt to slow the spread of COVID-19. Earnings fell from $0.44 per share in the second quarter of 2019 to a loss of $1.69 per share this year. Few were shocked by those numbers given the ongoing pandemic.  

A gambling table with dice and chips on it

Image source: Getty Images

However, Penn National provided a number of positive updates that are very important. For example, it has now reopened 39 of the 41 casinos in its portfolio. Furthermore, management believes that demand will remain fairly strong, though perhaps not at the levels seen early on in the reopening process (helped along by pent-up demand). This bodes well for the future and comes despite strict safety protocols and occupancy limits that have been enacted because of the coronavirus.

Investors are probably most excited today about news regarding Penn National's digital offerings. The Barstool sports-betting app is set to go live in September, with data feeds from key sports leagues to help provide a compelling experience for users. That should be a win for the company. And the Penn's iCasino online gambling platform posted quarterly sequential revenue growth of 108% in Q2. These digital platforms provide the gambling specialist with additional avenues for growth at the same time that its physical casino business is starting to come back on line, which helps explain why investors are so upbeat about the shares despite the headwinds the casino industry faces today.  

Now what

With cases of COVID-19 having spiked after the economic reopening process, long-term investors need to go in here understanding that many uncertainties remain. Moreover, while the digital initiatives are clear positives, Penn's core business is still operating physical casinos. In other words, there could still be a lot of volatility here until the novel coronavirus is better contained or there's a successful and widely available vaccine. Given the stock is up nearly 70% year to date, it wouldn't be surprising to see Penn's shares fall back on bad COVID-19 news.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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