Penn shares gain back one-third of Thursday stock market losses

Penn National Gaming Inc. stock shares on Friday gained back about one-third of the value lost Thursday when the stock plunged nearly 21 percent on the day of the company’s third-quarter earnings call.

Penn closed Friday up $4.36, 7.6 percent, to $61.78 a share on volume more than three times the daily average.

Gaming industry analysts had speculated Thursday that the stock price plunge was the result of a negative article about the founder of Penn partner Barstool Sports.

“We believe Penn’s shares’ 20 percent decline today is more of a function of investors’ reaction to a negative article on Barstool Sports visible founder Dave Portnoy than investors’ reaction to margin deleveraging in the third quarter or October,” Joe Greff, an analyst with New York-based JP Morgan, said in a note to investors. “We can think of scenarios where this article causes legitimate fallout relating to the effectiveness of the Barstool Sports brand, Portnoy and Penn’s use of it in the U.S.”

Sexual improprieties alleged

The article that appeared in Business Insider accused Portnoy of sexual improprieties with female house guests. Portnoy made a 10-minute online video denying all accusations.

“Mr. Portnoy has weathered similar storms in the past and we are not aware of any criminal investigations; but we also think multiple constituents may need clarity on the situation before we can fully understand the longer-term ramifications for Barstool and Penn,” said Barry Jonas of Atlanta-based Truist Securities said in a note to investors.

Deutsche Bank gaming analyst Carlo Santarelli said, “Our estimates are broadly unchanged, as we were modeling a considerable deceleration in the business for 2022 and 2023, though it appears to be happening sooner than expected.”

Penn on Thursday reported net income of $86.1 million, 52 cents a share, on revenue of $1.512 billion for the quarter that ended Sept. 30. In the same quarter a year earlier, the company reported net income of $141.2 million, 93 cents a share, on revenue of $1.13 billion.

Penn President, CEO and Director Jay Snowden made other headlines during the company’s Thursday-morning conference call with investors, saying he doesn’t believe having a property on the Strip is imperative to Penn’s success.

“Generally speaking, I don’t think it’s imperative that we have a Las Vegas Strip asset given the approach we have around (developing an omnichannel operation),” Snowden said during the call. “I think having representation across states throughout the U.S. is absolutely a strategic imperative for us and we’ve largely accomplished that goal.”

“If we were to find the right asset at the right location at the right price, of course we’d be interested.”

Penn was an unsuccessful bidder to acquire The Cosmopolitan of Las Vegas when MGM Resorts International snatched up the resort in late September for $5.65 billion.

Snowden was responding to an analyst’s question about the surprise announcement MGM made during its earnings call Wednesday that it intends to sell The Mirage. No price tag or prospective buyer was named.

Disciplined approach

He said Penn investors shouldn’t expect the company to overpay for a Strip property.

“It would be great to have an asset that we could create some retention value when (customers are) in Vegas,” Snowden said. “But we don’t think that such a strategic imperative that we would chase an asset or overpay. That’s how I feel currently. We’ll kick the tires if there’s something out there, we’re going to be disciplined in our approach and you know, yes, you’re going to have to pay a higher multiple for a Las Vegas Strip operating company than you would in most or all regional markets.”

Penn already operates a Strip property, the Tropicana, which is owned by its real estate investment trust partner, Gaming & Leisure Properties. In April, Providence, Rhode Island-based Bally’s Corp. agreed to buy the Tropicana from Gaming & Leisure Properties for $308 million.

Penn also operates the M Resort in Henderson.

While Snowden said Penn had hoped to buy The Cosmopolitan, which he described as a “once-in-a-lifetime opportunity for best-in-class assets,” the company won’t overspend.

“There are a lot of variables that you have to look at asset by asset as they become available — if they become available,” Snowden said. “But you should assume that we are not going to be chasing anything that we don’t believe we can get a good return on.”

Sports betting initiative

During the call, Snowden also commented on funding lobbying efforts to back a sports-betting initiative in California. Penn, he said, is one of seven companies backing the initiative with $12.5 million.

“I think (the initiative) has been constructed in a way that’s good for the state and good for those that operate casinos in the state today,” Snowden said. “We’re going to be pretty deep in signature gathering mode in the coming weeks and months and there’s been a little bit of opposition so we’re trying to understand that. We actually want to do this in a way that was completely complementary to the ballot initiative that the tribes already had out there before we announced the ballot initiative and the language of the ballot initiative.”

In addition to the California lobbying effort, Penn had extra expenses resulting from Hurricane Ida and regional flare-ups of the delta variant of the coronavirus. The company also reported $7.5 million in start-up costs in regional markets for Barstool Sports.

Contact Richard N. Velotta at rvelotta@reviewjournal.com or 702-477-3893. Follow @RickVelotta on Twitter.