Market is Overlooking Power of Barstool Brand for Penn National: Analyst
Photo Credit: Barstool Sports
Union Gaming raised its price target for Penn National to $40 from $28 in part because it believes the market is underestimating the influence of the Barstool brand and its key personalities, namely founder Dave Portnoy and CEO Erika Nardini. As a result of PENN’s $450 million acquisition of Barstool Sports in January, Portnoy and Nardini are now significant shareholders and under long-term employment contracts.
Online sports betting underdog: Union Gaming analyst John DeCree estimates the market is currently giving PENN credit for less than 6% sports betting / iCasino market share. Union Gaming calculates a near-term market share of 10% for PENN.
The Barstool Effect: Sports betting has long been a part of the media brands’ DNA through the company’s content and advertising partners. PENN looks to capitalize on Barstool’s 66 million monthly unique visitors when the Barstool Sportsbook app goes live in the third quarter of 2020. DeCree estimates that “62% of Stoolies bet on sports already.”
Penn National vs. DraftKings: PENN offers a more attractive valuation over the next 12+ months, according to DeCree. The analyst expects PENN will be successful in becoming a top three player in the online sports betting and iGaming category. Union Gaming estimates that a 10% market share for PENN translates to about $300 million of sports and iCasino revenue in 2021. This compares to the $705 million 2021 consensus revenue estimate for DraftKings, notes DeCree.
Big picture for OSB/iCasino: Union Gaming says the hype in the U.S. is “warranted given the industry is primed to grow at a CAGR of >40% over the next five years.” Optimism surrounding the return of professional sports and the potential for accelerated sports betting legalization have sparked a surge in gaming stocks including DraftKings. While the path for sports betting legalization seems promising, especially as states become increasingly desperate for revenue in the face of COVID-19, the legislative process could experience delays as lawmakers deal with issues related to the pandemic. Union Gaming emphasizes that it does not expect significant scale in Gross Gaming Revenue until the back half of 2021.
