Churchill Downs, Penn Entertainment Lauded in New Coverage by Mizuho

Posted on: March 26, 2024, 11:21h. 

Last updated on: March 27, 2024, 12:29h.

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

Churchill Downs (NASDAQ: CHDN) and Penn Entertainment are among the batch of gaming stocks viewed favorably in new coverage by Mizuho.

ESPN Bet Penn Entertainment sports betting
The ESPN Bet logo. Operator Penn Entertainment earned a “buy” rating in new coverage by Mizuho. (Image: ESPN Bet)

Analyst Ben Chaiken initiated coverage of more than a half dozen gaming names, including Churchill and Penn, citing the expansion of the U.S. sports wagering space as a catalyst for the latter. In a report to clients, the Mizuho analyst rated Penn a “buy” with a $29 price target, implying upside of 70% from the March 25 close.

We expect the depth and breadth of the ESPN customer base, and integration with ESPN Bet, should drive efficient customer acquisition providing an edge to PENN relative to other operators,” Chaiken noted.

Chaiken added that Penn’s land-based regional casino operations are undervalued, while calling ESPN Bet a “call option” on the operator’s shares because, at the moment, little or no value is assigned to Penn’s online sports betting business by the investment community. Chaiken also pointed out that the going could be tough when ESPN Bet enters states with established rivals, indicating that the operator’s success in new sports betting states is pivotal in terms of bolstering market share.

Churchill Downs Praised by Chaiken, Too

Churchill Downs also drew praise from Chaiken, who rates the stock a “buy” with a $142 price target. That implies upside of 20.6% from the March 25 close.

In noting that the regional gaming company’s already sturdy free cash flow-generating capabilities should trend higher — as earnings before interest, taxes, depreciation, and amortization (EBITDA) does the same — Chaiken added the Churchill Downs’ project pipeline, including casinos in Indiana and Virginia and enhancements at its namesake racetrack in Kentucky, aren’t fully reflected in the share price.

Chaiken also said that regulatory efforts to potentially criminalize some forms of gray market wagering in Kentucky and Virginia could be a boon for Churchill Downs. That’s because the operator is regulated and one of the largest in those jurisdictions.

The analyst is also bullish on other regional casino operators, including Boyd Gaming (NYSE: BYD) and Red Rock Resorts (NASDAQ: RRR), assigning “buy” ratings to both names.

Constructive on DraftKings, Too

High-flying DraftKings (NASDAQ: DKNG), shares of which are up 38% year to date, also drew praise from Chaiken. He started coverage of the online sportsbook giant with a “buy” rating and a $50 price forecast. That implies upside of 24.7% from Monday’s close.

Noting that the operator has 30%-plus market share in North America, Chaiken said DraftKings is the “leading online sports betting and iGaming company in North America,” and that Wall Street “underestimates the magnitude of the operating leverage in the business.”

Chaiken added that DraftKings should continue posting strong sales growth. That’s as more states permit sports wagering, and he believes the operator will be successful in driving marketing expenses lower.