Editor's Note: Below is a complimentary excerpt from a recent institutional research note written on 5/7/20 by our Gaming, Lodging, and Leisure (GLL) analyst Todd Jordan. If you are an institutional investor interested in accessing our research email firstname.lastname@example.org
We’re not going to go through the details of Q1 – the world was different then.
One main takeaway is that PENN has a plan for the recovery, and our guess is that it’s likely a plan that’s very adaptable to the uncertainty and it’s likely a better plan than the competition.
This is a great management team, especially on the operations side and operations are going to be front and center after re-opening and will be a major differentiator among the operators.
The negative for PENN is that it’s liquidity is relatively small versus other casino companies. With a monthly cash burn rate of $83 million and $731 million of liquidity as of March 31st, that implies less than 9 months of staying power assuming no revenues.
However, regional gaming is likely to re-open and ramp quicker than other travel sectors – many regional gaming markets are in low Covid-19 penetration metro areas and most of their customers reside in close proximity. So while limited liquidity presents risk, the risk is somewhat mitigated.
We remain concerned that post re-opening expectations are too high for most of the companies in GLL, and certainly PENN must contend with the fact that it’s customer demographic is old and may want to stay away from public places.
The Barstool relationship is somewhat of an offset, however, as their customer base continues to grow even through the pandemic. Moreover, PENN’s online and onsite sportsbook operations should significantly outperform with the Barstool moniker and PENN’s capabilities. More importantly, the relationship should, over time, introduce the PENN product to a whole new customer segment, Millennials.
This was a great acquisition/joint venture, in our opinion, with the benefits of the deal becoming evident as soon as later this year
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