Penn gets analyst nod on Barstool prospects

Penn National shares are expensive but the company still offers upside particularly from Barstool Sportsbook, say analysts at Truist Securities.

The team, led by Barry Jonas at Truist Securities, suggest Penn National is expensive but worth it given its prospects from a renewed appetite from casino gaming.

In an extensive sector report published yesterday, Jonas points out that Penn National saw its shares rise by 238% in 2020.

However, the shares are still rated a buy as Penn is set to benefit from an older demographic returning to the casino floors once the pandemic eases.

Meanwhile the upcoming Michigan opening – where Barstool Sportsbook will be there from the get-go – will test the power of the Portnoy-led brand.

Fast track

Barstool is a leading brand on the Wedge Index of gaming friendliness and as such it adds four points to the tally of any state it competes in.

Truist believe Barstool gives Penn National a faster route to profitability, something they believe will become more important to the market over time.

The analysts raised their price target to $120 from $85.

Currently Barstool Sportsbook is only up and running in Pennsylvania, where it has to date grabbed third place behind market leaders DraftKings and FanDuel.

Its clearest advantage when it comes to running a profit is its lack of marketing costs. The offering relies upon the halo effect from the Barstool social media presence and Dave Portnoy’s enhanced exposure.

In contrast, Penn’s fellow high-flying share DraftKings is only a hold with Truist. Though the team rate the company as a “best-in-class pure-play online operator” they “hesitate” to recommend a buy.

They say there are two issues: the stock having risen over 300% in 2020 is “priced to perfection”. 

Meanwhile, the big questions about the total addressable market, how much of it DraftKings can capture and margin estimates are up for grabs.

Of particular concern, Jonas writes, is the situation in New York.

“(The) move toward mobile sports betting could signify a further shift in economics from commercial operators to the state.”

MGM visibility issues

Also rated a hold is MGM Resorts where Truist say the picture is clouded by the prospects for business travel to Las Vegas, but also uncertainty over the Entain buyout.

Partly this is over worries for the international business. “Offers to date have been rejected, but we see uncertainty at what a revised offer could ultimately cost MGM.”

“How investors will view the additional complexity of Entain’s international business with its added layers of regulatory risks.”

Generally, the note suggests the team is bullish on gaming stocks. Partly this is about the pent-up demand during the time of the pandemic.

“While valuations aren’t cheap, we think stocks can grind higher amidst the improving fundamental narrative and continuing investor support (helped by retail and SPAC M&A).”

They see four more states opening this year to sports betting.

“This should continue the strong narrative driving the higher sports betting-related growth multiples. 

“We’ll continue to monitor how the NY market develops as higher tax/regulation is a real risk not fully appreciated.”


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