Casino, sports betting and entertainment operator PENN Entertainment (NASDAQ:PENN) met Wall Street’s revenue expectations in Q3 CY2024, with sales up 1.2% year on year to $1.64 billion. Its GAAP loss of $0.24 per share was 6.6% above analysts’ consensus estimates.

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Jay Snowden, Chief Executive Officer and President, said: “PENN’s third quarter results were consistent with the preliminary estimates we disclosed last month in connection with our investor event in Las Vegas. Stable consumer demand in our retail business was offset by unfavorable hold in our Northeast segment and volume declines in our South segment associated with severe weather disruptions and accelerated hotel remodeling. The fourth quarter is off to a stronger start, led by several markets including Michigan, Ohio, and St. Louis. In the third quarter, our Interactive segment benefited from better-than-expected hold, driven by a higher parlay mix from our improving product and lower promotional expenses. Additionally, on October 30th, we launched account linking between ESPN BET and ESPN, which is foundational for creating a personalized sports betting experience across the ESPN ecosystem.

Company Overview

Established in 1982, PENN Entertainment (NASDAQ:PENN) is a diversified American operator of casinos, sports betting, and entertainment venues.

Casino Operator

Casino 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 Growth

Examining a company’s long-term performance can provide clues about its business quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Regrettably, PENN Entertainment’s sales grew at a sluggish 4.3% compounded annual growth rate over the last five years. This shows it failed to expand in any major way, a rough starting point for our analysis.

Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. 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 grew its revenue by 1.2% year on year, and its $1.64 billion of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 10.4% over the next 12 months, an improvement versus the last two years. Although this projection shows the market believes its newer products and services will fuel better performance, it is still below average for the sector.

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Cash Is King

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

PENN Entertainment broke even from a free cash flow perspective over the last two years, giving the company limited opportunities to return capital to shareholders.

Key Takeaways from PENN Entertainment’s Q3 Results

It was good to see PENN Entertainment beat analysts’ EPS expectations this quarter despite in line revenue. The stock traded up 1.3% to $19.49 immediately after reporting.

So should you invest in PENN Entertainment right now? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.