Churchill Downs, Penn National Earn ‘Buy’ Ratings as Berenburg Starts Coverage

Posted on: October 19, 2021, 09:49h. 

Last updated on: October 19, 2021, 10:50h.

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

Berenberg analyst Zachary Silverberg initiates coverage of several gaming stocks today, revealing bullish views on a quartet of well-known names in the group.

gaming stocks
An analyst is bullish on a quartet of gaming stocks. That group includes Penn National and Scientific Games. (Image: AP News)

The analyst is constructive on lottery and gaming technology providers, such as consumer-facing, land-based operators, including Churchill Downs (NASDAQ:CHDN) and Penn National Gaming (NASDAQ:PENN), the largest regional casino operator in the US.

We initiate coverage on five gaming names with ‘Buy’ ratings on Penn National Gaming, Churchill Downs, International Game Technology and Scientific Games,” said Silverberg in a note to clients. “We expect our coverage universe will benefit from the growing market recovery in retail gaming and improving social outlook surrounding other gaming sector segments like digital and sportsbook.”

The analyst places a $294 price target on Churchill, implying 14.3 percent upside from current levels, noting that the company’s “trophy asset” — the Churchill Downs racetrack that hosts the Kentucky Derby — is undervalued. The stock is up nearly 39 percent over the past 90 days.

Penn Undervalued, Too

Silverberg is also bullish on Penn National, which is drawing praise from analysts this month. He has a $95 price target on the regional casino giant, which is 23.3 percent above the Oct. 18 close.

Owing to its Barstool Sportsbook unit and the enviable brand recognition that business offers, Penn is often viewed as a play on iGaming and sports wagering, and it is. However, the bulk of the operator’s earnings and revenue are still derived from land-based casinos.

Berenberg’s Silverberg call’s Penn “a leader in regional gaming,” and says the stock is being undervalued compared to larger peers. He displays some enthusiasm for the operator’s online sports betting efforts.

“We expect Penn will capture mindshare, given its strong marketing and reach with Barstool Sports and the vertical integration of theScore’s technology stack,” said the analyst.

Liking Lottery Names

Silverberg is also constructive on Scientific Games (NASDAQ:SGMS) and International Game Technology (NYSE:IGT) rating both “buy.” The analyst has a $98 forecast on the former and a $35 projection on the latter.

For IGT, the maker of the popular Wheel of Fortune slot machine, that implies upside of more than 20 percent from current levels. Citing IGT’s status as one of the biggest lottery services providers in the world, the Berenburg analyst says the stock is undervalued. It offers upside by way of iLottery, iGaming and sports betting. The company recently formed a dedicated digital wagering unit.

As for Scientific Games, Silverberg lauds the company’s recent sale of its sports betting technology business, and plans to divest its lottery unit. The analyst sees internet and social casinos, among other factors, stoking appreciation in the already hot shares.

“We believe SGMS offers upside at its current valuation and are optimistic regarding the future of the company as it invests in cross-platform gameplay,” he said.

Scientific Games is reportedly close to listing its SG Lottery unit in Australia. It is a transaction that could value the business at up to $6 billion and generate considerable proceeds for the company’s debt-reduction efforts.