Penn National Stock Rallies on Susquehanna Upgrade

Posted on: February 9, 2022, 09:49h. 

Last updated on: February 9, 2022, 10:14h.

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

Penn National Gaming (NASDAQ:PENN) stock is soaring Wednesday. That’s after a sell-side analyst waxed bullish on the company’s digital gaming unit.

Penn stock
The Barstool Sportsbook at Penn National’s Ameristar casino in Colorado. The stock is soaring today following an analyst upgrade. (Image: Uncover Colorado)

In a note to clients, Susquehanna analyst Joseph Stauff lifts his rating on Penn to “positive” from “neutral,” while boosting his price target on the stock to $65. That implies upside of more than 30 percent from the Feb. 8 close. Investors are cheering the analyst’s call, as highlighted by a move higher of 4.61 percent in midday trading by Penn shares.

Stauff notes Penn’s online business, which includes Barstool Sportsbook, is a critical driver for the stock, and that following an almost 59 percent decline over the past year, the shares are now de-risked.

Our upgrade assumes the stock has discounted (1) Penn’s slower than expected launches vs. its notably higher upfront investment; (2) impact of being crowded out-in 2H21 launch states, and (3) negative impact on its media asset value in 4Q21,” said the analyst.

Stauff adds Penn’s online operations can be positive contributors to the operator’s overall business. That’s as certain milestones are reached later this year, new markets are accessed, and as some rivals reduce iGaming and sports wagering spending.

Penn Land-Based Biz Attractive

Some analysts argue that Penn’s brick-and-mortar casino operations, which investors ignored amid the 2020 hoopla surrounding iGaming and sports wagering, are now undervalued.

Penn is the largest regional casino operator in the US, and its land-based portfolio generates cash, with some market observers saying the value of the operator’s traditional casino business is worth as much, if not more, than where the stock currently resides. If accurate, that’s a sign the company’s digital assets are a cherry on the sundae proposition for investors.

Susquehanna’s Stauff notes there’s little debate regarding the pertinence of Penn’s brick-and-mortar assets, and that the stock price is mostly tethered to success on the digital front.

“Penn is a stock with a steady regional land-based casino portfolio whose most sensitive value driver is linked to the success of its emerging digital offering, which we think has been de-risked at current trading levels,” said the analyst.

Sparks for Penn Stock

The good news for investors focusing on Penn’s online wagering business is that the company said it lost $6 million on sales of $150 million in the fourth quarter — far better than the loss of $20 million on revenue of $114 million analysts expected. For 2022, the operator is estimating a digital loss of $50 million, better than prior guidance calling for an $80 million loss.

Penn has levers it can pull to potentially engineer better equity performance in 2022. For example, the integration of the Score Media and Gaming acquisition gives the company a foothold in what’s expected to be an exciting sports betting opportunity set in Canada.

Last week, the gaming company said it will repurchase $750 million worth of its own shares, potentially signaling to investors it views its stock as undervalued.