Stock Story -
Casino, sports betting and entertainment operator PENN Entertainment (NASDAQ:PENN) reported results in line with analysts' expectations in Q2 CY2024, with revenue flat year on year at $1.66 billion. It made a GAAP loss of $0.18 per share, down from its profit of $0.46 per share in the same quarter last year.
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PENN Entertainment (PENN) Q2 CY2024 Highlights:
- Revenue: $1.66 billion vs analyst estimates of $1.65 billion (small beat)
- EPS: -$0.18 vs analyst estimates of -$0.25 (28.4% beat)
- Gross Margin (GAAP): 34.4%, down from 41.6% in the same quarter last year
- EBITDA Margin: 12.8%, down from 15.1% in the same quarter last year
- Market Capitalization: $2.58 billion
Established in 1982, PENN Entertainment (NASDAQ:PENN) is a diversified American operator of casinos, sports betting, and entertainment venues.
Casino OperatorCasino operators enjoy limited competition because gambling is a highly regulated industry. These companies can also enjoy healthy margins and profits. Have you ever heard the phrase ‘the house always wins’? Regulation cuts both ways, however, and casinos may face stroke-of-the-pen risk that suddenly limits what they can or can't do and where they can do it. Furthermore, digitization is changing the game, pun intended. Whether it’s online poker or sports betting on your smartphone, innovation is forcing these players to adapt to changing consumer preferences, such as being able to wager anywhere on demand.
Sales GrowthA company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones tend to grow for years. Regrettably, PENN Entertainment's sales grew at a weak 6.7% compounded annual growth rate over the last five years. This shows it failed to expand in any major way and is a rough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or emerging trend. PENN Entertainment's recent history shows its demand slowed as its revenue was flat over the last two years. Note that COVID hurt PENN Entertainment's business in 2020 and part of 2021, and it bounced back in a big way thereafter.
This quarter, PENN Entertainment's $1.66 billion of revenue was flat year on year and in line with Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 9.4% over the next 12 months, an acceleration from this quarter.
Operating Margin PENN Entertainment's operating margin has shrunk over the last year and averaged 7.9%. The company's profitability was mediocre for a consumer discretionary business and shows it couldn't pass its higher operating expenses onto its customers.
In Q2, PENN Entertainment generated an operating profit margin of 4.5%, down 7.6 percentage points year on year. This contraction shows it was recently less efficient because its expenses increased relative to its revenue.
Key Takeaways from PENN Entertainment's Q2 ResultsWe were impressed by how significantly PENN Entertainment blew past analysts' EPS expectations this quarter. Zooming out, we think this wasn't a perfect quarter, but it was certainly a solid one. The stock traded up 4% to $17.95 immediately following the results.
