PENN Entertainment (NASDAQ:PENN) Beats Q2 Sales Targets

This quarter, PENN Entertainment reported year-on-year revenue growth of 6.1%, and its $1.77 billion of revenue exceeded Wall Street’s estimates by 1.9%.

Looking ahead, sell-side analysts expect revenue to grow 6.3% over the next 12 months. Although this projection implies its newer products and services will catalyze better top-line performance, it is still below the sector average.

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Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

PENN Entertainment’s operating margin has risen over the last 12 months and averaged 2% over the last two years. The company’s higher efficiency is a breath of fresh air, but its suboptimal cost structure means it still sports inadequate profitability for a consumer discretionary business.

This quarter, PENN Entertainment generated an operating margin profit margin of 4.4%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Although PENN Entertainment’s full-year earnings are still negative, it reduced its losses and improved its EPS by 11.4% annually over the last five years. The next few quarters will be critical for assessing its long-term profitability.

In Q2, PENN Entertainment reported adjusted EPS at $0.10, up from negative $0.18 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street is optimistic. Analysts forecast PENN Entertainment’s full-year EPS of negative $0.84 will flip to positive $0.97.

We were impressed by how significantly PENN Entertainment blew past analysts’ EPS expectations this quarter. We were also happy its revenue outperformed Wall Street’s estimates. On the other hand, its EBITDA missed. Zooming out, we think this was a mixed quarter. The stock remained flat at $16.88 immediately following the results.

Is PENN Entertainment an attractive investment opportunity right now? What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.