Penn National Gaming (NASDAQ:PENN) is one of the best-performing gaming equities over the past year. It’s a status largely attributable to market participants’ expectations for internet casinos and online sports betting.
At least one analyst says those catalysts are priced into Penn stock, leaving the company’s often overlooked, land-based casinos to act as catalysts. Although Jefferies boosts earnings estimates on the regional gaming operator, analyst David Katz reiterates a “hold” rating on the stock, citing a sluggish pace of recovery in some key markets.
Casinos in several markets, namely Illinois, Michigan, and Pennsylvania, were shuttered during the fourth quarter and reopened in January and reflected gross gaming revenue (GGR) recovering at a more gradual pace than expected,” said Katz in a note to clients. “Partially offsetting the weakness, however, is better than expected results in Ohio and Indiana, with March results modestly above 2019 levels.”
The analyst has a $110 price target on Penn stock, which is slightly above the consensus forecast of $108.85 and implies upside of nearly eight percent from the April 13 close. Katz does, however, add there is an extremely bullish upside scenario in which the shares could climb to $200.
Recent Struggles for Penn Stock
Over the past year, shares of Penn National are higher by 628.41 percent — good for one of the most scintillating performances among casino equities.
Some of the air came out of that trade in recent weeks. Since it was revealed the stock would join the S&P 500, it’s off 21.39 percent. Shares of the Ameristar operator are lower by 27.49 percent from the 52-week high. A decline of 20 percent or more from a recent high is considered a bear market.
Katz said that run to the upside was driven by digital development news, namely Penn’s Barstool Sportsbook brand. The mobile betting app is live in Illinois, Michigan, and Pennsylvania. The operator recently won approval to launch in Virginia, and is aiming to be live in 10 states by the start of the 2021 NFL season.
The Jefferies analyst acknowledges the Michigan launch provided better-than-expected results for both Barstool Sportsbook and Penn’s iGaming unit. In markets in which it’s currently live, the sports betting app is achieving solid market share with significantly less advertising and promotional spending than rivals such as DraftKings and FanDuel.
Looking Forward on Penn Casino Business
While analysts and investors are fawning over internet casinos and online sports wagering, the fact remains that Penn is a traditional casino operator. In fact, it’s the largest regional gaming company in the country, with 40 venues in 20 states.
That levers the company to trends such as pent-up travel demand and increasing levels of coronavirus vaccinations.
Katz, the Jefferies analyst, says the firm’s geolocation data indicates strong improvements in March in terms of foot traffic across most of the markets in which Penn operates casinos. He expects the pent-up demand trend will be in play well into 2022.