Penn National Rallies After Analyst Lifts Price Target to Another Street High

Posted on: September 30, 2020, 10:28h. 

Last updated on: September 30, 2020, 11:27h.

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

Penn National Gaming (NASDAQ:PENN) is rallying anew today, helped by an impressive financial forecast and more sell-side enthusiasm.

Hollywood Casino
The slots area at the Penn National Hollywood Casino in Columbus, Ohio. An analyst likes the company’s land and online mix. (Image: Cleveland.com).

In a note to clients today, Rosenblatt Securities analyst Bernie McTernan boosted his price forecast on the gaming company to $90, the highest on Wall Street. As of Sept. 9, McTernan didn’t even follow Penn. He initiated coverage of the stock on Sept. 10 with a “buy” rating and an $80 estimate, meaning that in the span of three weeks, his price projection increased 12.50 percent.

Our test of the Barstool app, a successful launch in Pennsylvania with minimal external marketing and growth in the second weekend, suggests a lower probability of our bear case playing out, and now greater focus on the bull case,” writes McTernan.

His $90 price target on Penn stock is $5 above the next-closest estimate, and implies upside of 25 percent from where the shares trade at this writing.

Plenty of Catalysts

After the close of US markets Tuesday, the operator of casinos under the Argosy and Hollywood brands, among others, told investors its third-quarter earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR) and revenue will exceed Wall Street forecasts.

Perhaps as important, if not more so, is that an investor presentation released by Penn shows the new Barstool Sportsbook mobile app posted a 14 percent handle increase in its second weekend after notching $11 million the week prior. That with the company not spending anything on external marketing.

It’s unlikely that $0 advertising figure will continue over the long-term. But Penn’s ability to lure bettors to the new app on a cost-efficient basis is something the investment community could reward because customer acquisition costs are high in the online sports betting space.

“We believe this was a successful launch in an already established, competitive market,” said Rosenblatt’s McTernan. “Importantly, PENN was able to achieve these results without spending on external marketing due to their content-driven customer acquisition strategy.”

Don’t Forget Old School Casinos

While Penn expects iGaming and sports wagering to have material impacts on its top and bottom lines next year, the company is a new player in these still-nascent industries. These businesses have a multi-year ramp up ahead, meaning the operator still needs to execute its core competency of running land-based casinos.

The aforementioned financial outlook confirms EBITDAR and margins at Penn’s regional properties are increasing, and the company’s Las Vegas exposure is confined to just two venues – a positive at a time when Sin City is scuffling.

“Preliminary results show revenue is returning to the regional casino business faster than expected and at higher incremental margins,” said McTernan.

Penn runs 41 gaming properties in 19 states with Illinois, Louisiana, and Ohio among its largest markets.