Penn National Has More Upside Ahead, Analyst Calls Portnoy a ‘Genius’

Posted on: September 1, 2020, 10:31h. 

Last updated on: September 2, 2020, 10:06h.

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

Shares of Penn National Gaming (NASDAQ:PENN) are up more than 13.50 percent in midday trading, putting the stock on pace of its best intraday performance in close to a month. That’s after research firm Craig-Hallum initiated coverage of the regional gaming company with a “buy” rating and a $75 price target.

Craig-Hallum Initiates Penn Nat'l Coverage With "Buy" Rating
Barstool Sports founder David Portnoy seen here interviewing President Trump. Portnoy is a “marketing genius,” says a Wall Street analyst. (Image: CNN)

That forecast implies an upside of 51 percent from the Aug. 31 close. Analyst Ryan Sigdahl’s bullishness revolves largely around Penn’s stake in David Portnoy’s Barstool Sports.

Dave Portnoy is a marketing genius,” said the analyst in a note to clients. “If millions of people follow his pizza reviews and stock trading, how many do you think will follow his sports betting recommendations?”

Penn will soon roll out the Barstool betting app, which is expected to debut in time for the NFL season. The league’s first game is on Thursday, Sept. 10. With that app, Penn will leverage the Barstool brand as it enters into direct competition with the likes of DraftKings and FanDuel — the dominant forces in the US online sports wagering market.

But Wait, There’s More

Alone, Sigdahl’s estimate that Penn stock could run to $75 is eye-catching. While eight of the 13 analysts covering Penn are very bullish or bullish on the name, the Craig-Hallum analyst’s $75 forecast is well above the Wall Street consensus of just over $47.

However, Sigdahl isn’t saying $75 will be the end of Penn’s good fortune, assuming the stock gets there. The analyst sees a runway for the stock climbing to $200 over the next several years, meaning it could nearly quadruple from the Aug. 31 close. Interestingly, that forecast arrives less than a week after Morgan Stanley downgraded Penn, citing valuation concerns.

“Barstool has a large, growing and cult-like audience, of which ~half are millennials, and 62% already bet on sports,” writes Sigdahl. “Barstool will exclusively promote PENN’s online offerings (including Barstool Sportsbook) for 40 years. Prepaid advertising (via investment) to a captive audience.”

Penn paid $163 million in cash and equity to buy 36 percent of Portnoy’s company in January, with an option to increase that stake to 50 percent in a few years, and eventually own the media property outright for $450 million. That move touched off a wave of tie-ups between sports betting and media companies.

Don’t Forget Casinos

With 41 gaming properties in 19 states, Penn’s bread and butter remain running casinos, and it’s one of the largest regional gaming operators in the US.

Nearly all of the company’s venues are reopened following the coronavirus shutdown, and regionals are outperforming destination markets, such as Las Vegas, providing a tailwind for operators like Penn. That’s meaningful because cash generated at land-based properties can fund Penn’s expansion into higher-margin areas, namely iGaming and online sports wagering.

“Retail casinos provide strong cash flow to fund online investments, and we believe potential upside from retail Barstool sportsbooks and bars is underappreciated,” notes Sigdahl. “Moreover, we believe the strategic investment and partnership with Barstool creates significant synergies to drive top 3 sports betting and iGaming market share, but #1 profitability online.”