Union Gaming analyst John DeCree raised his price target on Penn National (PENN) to $100, a "Street-high," citing valuation for its regional casino business, sports betting and "iCasino" opportunity. Still bearish on the stock, his peer at Deutsche Bank argued that the "fundamental and valuation support" under Penn National shares is "lacking," and expects the stock to see a "considerable contraction." Meanwhile, the National Football League said the Pittsburgh-Tennessee game scheduled for Week 4 will be postponed to later this season after one additional Titans player and one personnel member tested positive for COVID-19.
TARGET RAISED TO 'STREET-HIGH': Union Gaming analyst John DeCree raised the firm's price target on Penn National to $100 from $62, while keeping a Buy rating on the shares. The analyst cited his sum-of-the-parts analysis that attributes $35 per share in value to its regional casino business and $65 per share in value to its sports betting and "iCasino" opportunity. While DeCree noted that his valuation for the sports/iCasino business is still about five times below DraftKings (DKNG), he argued that the "multiple differential is still warranted" given the latter's early success and market share. However, DeCree expects the valuation gap to "tighten over time" as Penn continues to execute and ramp up in digital gaming, he added.
Meanwhile, Jefferies analyst David Katz also raised his target on Penn National to $69 from $50, keeping a Hold rating on the shares. The company's $982M secondary equity offering of 16.1M shares shows the support of the capital markets for digital gaming and mitigates the primary near-term leverage risk for Penn, Katz told investors in a research note of his own. The analyst believes the offering, coupled with the initial launch of its sportsbook app, continues to build confidence in the Street that Penn can derive more value from digital gaming than from its land-based operations.
'CONSIDERABLE' CONTRACTION: Penn National Gaming shares have benefited from the "retail community turning the ticker into an internet meme of sorts," thereby creating momentum in the stock, Deutsche Bank analyst Carlo Santarelli told investors in a research note. A narrative "that largely abandons fundamental rationale" has been created, said the analyst. While Santarelli acknowledged that he doesn't know when this will end, he believes the total addressable market story around sports betting "will start to crack" as more and more data points around per capita spend come to the forefront.
Further, he argued that the level of sports betting competition will become more evident and questions around margins will begin to appear. Santarelli believes the "fundamental and valuation support" under Penn National shares is "lacking," and that "when some or all of these things happen," the stock will see a "considerable contraction." To reflect margin strength in third quarter and favorable core operating revisions, the analyst raised the firm's price target on Penn National Gaming to $31 from $22. Nonetheless, Santarelli kept a Sell rating on the name.
PENN BACKS GUIDANCE: On Tuesday, Penn National Gaming announced that it has closed on its underwritten public offering of 16.1M shares of its common stock, which includes 14M shares of its common stock initially offered by the company and 2,100,000 shares of its common stock issued pursuant to the option granted the underwriters, which the underwriters exercised in full on September 25.
"This successful offering provides our company with additional resources to accelerate our unique omni-channel strategy, including launching the Barstool Sportsbook app in new markets, developing new products and features, establishing Barstool-branded sports bars and retail sportsbooks and reimagining the customer experience at our casinos, all while fortifying our balance sheet," Jay Snowden, President and CEO of Penn National said.
"On September 18, we officially introduced the Barstool Sportsbook app in the state of Pennsylvania, which broke records for the most downloads ever for the launch of a new mobile sportsbook, and it generated impressive handle. This momentum has continued into our second week of operation, as this weekend's handle grew by 14% over our initial weekend despite continuing to spend $0 in external marketing. In addition, we are extremely pleased with the operating performance of our properties this quarter, despite continued occupancy restrictions," the executive added.
Penn National also said that the company continues to expect third quarter consolidated revenues between $1.04B-$1.145B and third quarter consolidated adjusted EBITDAR of $410M-$450M, consistent with the ranges previously reported in its prospectus supplement.
GAME POSTPONED: The National Football League said in a statement that, "The Pittsburgh-Tennessee game scheduled for Week 4 will be rescheduled to later this season after one additional Titans player and one personnel member tested positive for COVID-19. An announcement of the new game date will be made shortly. The decision to postpone the game was made to ensure the health and safety of players, coaches and game day personnel. The Titans facility will remain closed and the team will continue to have no in-person activities until further notice."
DRAFTKINGS, EAGLES DEAL: DraftKings and the Philadelphia Eagles have announced a new multi-year deal which will make DraftKings the Official Daily Fantasy Sports Partner and Official Sports Betting Partner of the Philadelphia Eagles. As part of the new agreement, DraftKings will receive exclusive naming rights to Lincoln Financial Field's field club, which will be called "The DraftKings Field Club."
Meanwhile, Needham analyst Brad Erickson has initiated coverage of DraftKings with a Buy rating and $70 price target. The analyst believes company should be one of the leading beneficiaries as online sports betting and gambling "take off" in the U.S., estimating the annual long-term opportunity in the $48B-$52B range. Erickson added that regulatory tailwind for DraftKings should persist, as online providers' access to data results in a "structurally better user experience" versus brick & mortar betting options.
PRICE ACTION: In afternoon trading, shares of Penn National have gained 2.3% to $74.39, while DraftKings' stock has advanced about 5% to $61.81. Other publicly traded companies in the gambling space include Boyd Gaming (BYD), Caesars (CZR), Churchill Downs (CHDN), Flutter Entertainment (PDYPY), Gan Limited (GAN), Las Vegas Sands (LVS), MGM Resorts (MGM), William Hill (WIMHY) and Wynn Resorts (WYNN).
