Stock of the Week: Penn National Gaming (PENN)

The Common Room’s stock of the week is Penn National Gaming (PENN), which is an operator of casinos and racetracks, along with a framework for sports betting technology, based in Wyomissing, Pennsylvania. Penn made waves in January 2020 when the company acquired a 36% stake in Barstool Sports for $163 million, with a future option to gain a controlling stake and eventually total ownership.

Since its founding by Dave Portnoy as a sports blog that provided gambling odds, Barstool has been at the forefront of the explosion of sports gambling into mainstream American culture. Look no further than the re-launch of the XFL last fall, which featured ESPN announcers openly discussing odds in the booth and chryons displaying live odds during the broadcast, something that would have been unfathomable a decade ago. Since the 2018 Supreme Court decision which overturned Nevada’s monopoly on sports gambling, sports betting is now legal in 18 states (and DC), with a passed bill in 4 additional states, and active legislation in 9 others. Furthermore, leaps in technology have moved gambling from the casino to the phone, and DraftKings CEO Jason Robins pointed out that now companies can cut into the “$150 billion wagered annually through off-shore, black market bookies”. Robins continued, “States are now free to allow their residents to place mobile sports bets with licensed, trusted companies based in the U.S. and that pay taxes here.” Dallas Mavericks owner Mark Cuban also praised the Supreme Court decision, quipping “I think everyone who owns a top four professional sports team just basically saw the value of their team double.”

With the growth of legal sports gambling made possible at the same time that technological innovations have made sports betting more accessible to the casual fan, companies with strong mobile offerings are poised to significantly increase their market cap and be at the forefront of a rapidly changing market. Penn is well-positioned to do that, having founded Penn Interactive Ventures (PVI) in 2015. In 2020, Penn revealed strategic partnerships with a number of online sports betting companies in 19 different states, including DraftKings. Penn will provide these companies the technological platform for their application in exchange for a share of net gaming revenue or an equity stake.

Even though Penn, like other casino companies, has struggled with losses from physical properties due to the Covid-19 pandemic (they recently announced the sale of the Tropicana Las Vegas), their business has remained incredibly strong due to the forward-thinking vision of CEO Jay Snowden, who commented that even already, “we expect our digital businesses to deliver meaningful revenue and profit contributions in 2021 and beyond”.

Penn’s stock has boomed back this summer recovering from a 52 week low of $3.75 on March 18th to close today (September 8th) at $54.83. Even with that significant of an increase, the stock still has momentum, having just announced the soft launch of the Barstool Sportsbook app on September 15th. The financial world is catching on too, as just last week, Craig-Hallum analyst Ryan Sigdahl placed a “Buy” rating on Penn and set a $75 target for the stock, in large part due to the partnership with Barstool.

With the return of college football and the NFL this weekend, even more dollars will flock to online sports betting. Penn is well-positioned as a market leader in a growing industry and has been able to pivot from an over-reliance on physical casinos to an embrace of technology and the future of sports betting. Additionally, its partnership with Barstool Sports should continue to increase the company’s reach and value in the future.

Penn’s stock has roared back from a 52 week low at $3.75 in March and according to analysts has even more potential

Note – The Common Room is not affiliated with the financial services industry in any way.

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