Penn National stock sale ‘a necessary strategic decision’ and reflects company’s value By Howard Stutz, Executive Editor, CDC Gaming Reports September 26, 2020 at 5:00 am Remember when Penn National Gaming stock was trading at $3.75 per share? That’s ancient history, even though it was just six months ago. On Thursday, the regional casino operator sold 14 million shares of the company’s stock for $61 per share on the Nasdaq, raising $854 million – which could jump to $982.1 million if underwriters exercise their 30-day option to acquire another 2.1 million shares. Penn said the proceeds will be used for “general corporate purposes,” which could range from investments in its 41 casinos in 19 states to expanding its newly launched mobile sports betting app with Barstool Sports. A week ago, Penn’s shares hit $76.62 – a 52-week high. They closed Friday at $69.85. “We are not entirely surprised to see Penn accessing the equity markets and buffering their balance sheet, with shares up a tremendous 150% year-to-date,” Truist Securities gaming analyst Barry Jonas said Friday. He believes investors are banking on Penn’s long-term sports betting and igaming potential. Deutsche Bank gaming analyst Carlo Santarelli said the stock sale “prudently takes advantage of the exuberance of the retail and momentum trading crowds.” While he called the stock sale “a necessary strategic decision,” the implied value the company and public are giving the growing sports betting and Internet gaming markets is “unrealistic, in our opinion.” Shutterstock Beauty is in the eye of the beholder. On Thursday, Macquarie Securities gaming analyst Chad Beynon downgraded Penn to a “neutral” position but launched coverage of sports betting operator DraftKings as an “outperform” stock. Sports betting is currently available at casinos, racetracks, and online in 18 states and Washington D.C. Tennessee now expects to launch its online sports betting product before Nov. 1. Three other states have legalized sports betting, but are still considering the regulations. Three more states – Maryland, Louisiana, and South Dakota – have sports betting referendums on their Nov. 3 ballots. Beynon suggested half the U.S. will have legal sports betting in place by the end of 2021. But the competition – DraftKings, FanDuel, BetMGM, Rush Street, William Hill US, Golden Nugget, and now Barstool – is growing as fast as the market allows. He forecasted that 96% of the U.S. population will have legalized sports betting available to them by 2025. “We prefer first-mover companies with healthy balance sheets and a willingness to focus on topline growth, as we believe those factors will determine the major winners,” Beynon said. “In addition, we believe media programming and sponsorships will be critical, as they are in the United Kingdom.” In its Securities and Exchange Commission filing associated with the stock sale, Penn said its third-quarter net revenue is expected to be between $1.04 billion and $1.145 billion when the period ends next week. Cash flow is expected to be between $410 million and $450 million. Penn’s stock price cratered in late March – along with the rest of the gaming industry – when the fast-advancing coronavirus pandemic caused state leaders and tribal governments to close nearly 1,000 commercial and Indian casinos in 43 states. Penn closed its properties and furloughed some 26,000 employees by early April. It traded ownership of Tropicana Las Vegas and an under-construction casino in Pennsylvania for $337.5 million in rent credits to Gaming and Leisure Properties (GLPI). Penn retained the management of the Las Vegas Strip resort. The company had $730.7 million in cash at the time, enough to survive without any revenues until the end of the year. Following a $600 million debt and stock financing in May, Penn had more than $1.3 billion in liquidity. Penn’s properties are now reopened, albeit, under COVID-19 health, safety, and cleaning protocols mandated by state gaming regulators. The company successfully launched its Barstool-branded mobile sports betting app in Pennsylvania a week ago and is targeting an October launch for the app in Michigan. Beynon said the “raft-lifting” moves in the spring “shored up the balance sheet for 2020,” but he was hopeful the company might use some of the stock sale proceeds to pay down debt. Santarelli had a similar opinion, although he said the company could use the funds for a quicker rollout of the Barstool app in additional states. “We believe this additional dry powder puts Penn on more level ground with peers, as it pertains to competing over the near to medium term, in the race for market share,” Santarelli said. Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at firstname.lastname@example.org. Follow @howardstutz on Twitter.