Penn National Gaming: The Margin Enhancement Plan is Working

Penn National Gaming

Penn National Gaming (NASDAQ:PENN) stock price rose more than 12% after topping analysts’ estimates for the first quarter results. Its first-quarter revenue of $816 million exceeded the consensus estimate by $5.18 million, and its earnings per share of $0.48 beat estimates by $0.06 per share. Its stock has regained momentum after falling sharply at the beginning of the year, amid its potential to turn the revenue growth into big profits.

Its earnings per share increased 22% year over year to $0.48 per share on revenue growth of 5%. The huge gap in revenue and earnings growth represents smart business management.

Penn National Gaming’s management has been smartly executing their margin expansion plan that they presented last October. Its margin expansion plan is based following points:

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  •         Capital allocation in high margin areas
  •         Refinements in Its marketing and procurement strategies
  •         Leveraging its scale and improving the purchasing power
  •         Cost saving from general and administrative expenses

Its margin expansion strategies are working considering robust adjusted EBITDA growth from all three segments. Its first-quarter adjusted EBITDA margin enlarged 42 basis points – with the majority of gaming operations showing improving margins.

Timothy J. Wilmott, Chief Executive Officer, commented, “We are achieving significant benefits from our ongoing margin enhancement initiatives, which helped all three operating segments generate year over year adjusted EBITDA growth.”

Analysts are Bullish on Upside Potential

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Its shares are currently trading around $29, just shy of the 52-week high of $33 a share. PENN stock has the 52-week trading range of $17.56 – $33.30. Analyst’s price target for Penn National stock stands around $29 to $39 – with among eight analysts covering Penn National Gaming, six of them have Buy rating.

PENN stock trades well below the industry valuations. Its price to earnings ratio stands around 5.18 and price to sales at 0.79, compared to the industry average 21 and 2.13, respectively.

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