Penn National Gaming Lures Bullish Bets, Earnings Report Looming

Posted on: July 29, 2019, 12:47h. 

Last updated on: July 30, 2019, 06:18h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Ahead of Penn National Gaming, Inc.’s (NASDAQ:PENN) second-quarter earnings report due out Thursday before the US markets open, options traders piled into the name Monday, making decidedly upside wagers on the regional gaming company.

The Tropicana in Las Vegas operated by Penn National, a stock traders are suddenly excited about. (Image: Booking.com)

Entering Monday, Penn National was one of the worst-performing stocks in the regional gaming space with a year-to-date gain of just 3.5 percent. That is less than half the 8 percent returned this year by Red Rock Resorts, Inc. (NASDAQ:RRR) and a mere fraction of the almost 30 percent gained by Boyd Gaming Corp. (NYSE:BYD).

This one is one (Penn National) that some of the smaller gaming companies have had a lot of love lately,” said options trader Jon Najarian on CNBC earlier today. “There’s upside call activity. They’re (traders) buying August $20 calls here.”

Options market data suggest traders are wagering shares of Penn National are poised to snap out of those doldrums and bets on the operator of casinos under the Ameristar and Hollywood brands come after the stock surged 8.6 percent last week.

Bullish Buying

With about an hour left in Monday’s trading session, the August $20 Penn National calls, the options mentioned above, had a volume of nearly 13,000 contracts, meaning buyers of those contracts are betting the stock moves above $20 before the options expire on Aug. 16. That’s not a long road for shares of Penn National to travel because the stock trades around $19.60 at this writing.

The August $20 calls by far had the biggest uptick in volume today of PENN options. Turnover in the $18, $19, and $21 calls also set to expire this month, totaled just 969 contracts with an hour left in the session, according to Nasdaq data.

Further confirming that traders are enthusiastic on PENN, at least over the short-term, there was no accompanying unusual activity in put options on the stock. Traders buy call options to express a positive view on a stock while put options are employed to bet that the underlying equity will decline.

Penn National, the operator of the Greektown Casino in Detroit, is expected to post earnings of 34 cents a share for the quarter ending June 30, down from 57 cents a year earlier.

Analyst Chatter

Over the past month, analysts revised profit estimates on Penn National higher by nearly 2 percent. The company’s last four quarterly reports featured just two upside surprises. While PENN doesn’t have a tradition of buoyant earnings updates, some analysts are enthusiastic about the stock over the long-term.

Last week, research firm Susquehanna initiated coverage of the casino operator with a “positive” rating, the equivalent of a “buy” and a $25 price target, implying upside of more than 25 percent from Monday’s closing price.