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Why Penn National Gaming Plunged 21% Today

By James Brumley – Nov 4, 2021 at 4:56PM

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The casino and gambling app outfit suffered a double shot of bad news, though neither was a fatal blow.

What happened

Shares of Penn National Gaming (PENN -0.20%) tumbled to the tune of 21.1% on Thursday after the company reported third-quarter earnings that fell short of expectations. Bolstering today's selling may be reports that Barstool Sports' front man David Portnoy engaged in violent -- though not non-consensual -- sex. Penn is not only a 36% stakeholder in Barstool sports, but is building Barstool-branded sports bars and sports-betting books in many of its casinos.

So what

For the third quarter of 2021 ending in September, Penn National Gaming earned $0.52 per share on $1.51 billion in revenue. The top line improved on year-ago sales of $1.13 billion, although profits peeled back from Q3 2020's per-share profits of $0.93.

More damaging was the earnings miss. While Penn's revenue was in line with analyst expectations, those same analysts were expecting a bottom line of between $0.85 and $0.89 per share, depending on the source. The official report from the company suggested Hurricane Ida and the spread of the delta variant of the coronavirus made an impact on last quarter's results.

Falling stock chart on a computer screen.

Image source: Getty Images.

While the stock was already sharply lower before the article was posted, a story posted by Business Insider on Thursday claiming Barstool Sports' founder David Portnoy requested "violent and humiliating" sex may be fueling even more selling. Although none of the women interviewed alleged their sex with Portnoy was non-consensual, they did claim it was unexpectedly painful. The report is potentially damaging to Penn's brand, in that the casino operates Barstool-branded sports bars and offers Barstool-branded sports betting in certain locales. The Barstool brand was being positioned as a big growth driver for the company.

Now what

The Portnoy news is shocking, although not necessarily a damaging or long-term blow to Penn National Gaming. A great deal of Portnoy's appeal has been and is his brash, crude persona. Business Insider's feature doesn't come as a complete surprise to many, and is apt to be forgotten soon enough barring any actual criminal charges or lawsuits.

As for last quarter's earnings miss, while profits were nearly cut in half on a year-over-year basis, that's a forgivable outcome in that we're still in the midst of an unprecedented economic scenario. To this end, last quarter's revenue was 11% better than Q3 2019's, when COVID-19 wasn't a factor. Earnings were up 32% on a two-year comp basis. That's the more accurate snapshot of Penn National's fiscal health, and it's solid enough. Today's stumble tops off more than a halving of the stock's value just since, but may ultimately serve as a capitulation.

In other words, for investors who aren't risk averse, this is a buying opportunity.

James Brumley 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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