Penn Portnoy Euphoria Continues as Analysts Sees $85 Stock, Highest Wall Street Call

Posted on: September 17, 2020, 09:17h. 

Last updated on: September 17, 2020, 10:15h.

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

Penn National Gaming (NASDAQ:PENN) is extending its scintillating run Thursday, trading higher by almost seven percent. That’s after Stifel analyst Steven Wieczynski placed an $85 price target, up from $47, on the name, the highest such call on Wall Street.

David Portnoy
Penn National investors love Barstool Sports founder David Portnoy, seen here in a CNBC earlier this year, and that’s powering big upside in the stock. (Image: CNBC)

With the US sports calendar replenished following the coronavirus shutdown and states shattering previous handle records, Penn’s 36 percent ownership of David Portnoy’s Barstool Sports looks all the more compelling to investors.

That’s speeding a rally that’s seen the stock more than double since mid-July. After a run like that, it’d be easy to assume upside from here is limited. But Penn stock is recently defying that logic, soaring 27.11 percent over the past month.

After making a handful of positive changes to our assumptions, we are raising our target price to $85,” said Wieczynski. “While some would argue PENN shares could be overvalued, we believe they can continue to work, especially into November, as we expect a number of states to pass gaming legislation that should keep the sports betting/iGaming momentum rolling.”

His $85 call, which comes with a “buy” rating, implies an upside of about 27 percent from the Sept. 16 close and arrives a week after another analyst placed an $80 forecast on the name. At the time, that was a Wall Street high.

Trade to Continue Momentum

At this juncture, as Wieczynski notes, Penn is what’s known as a momentum trade. The simple definition of momentum investing is buying securities that already appreciated significantly, often over short time frames, with expectations that momentum will continue propelling those names higher.

There’s no denying Penn has ample momentum, most of which is sourced via ongoing market ebullience for sports betting. The company is currently soft launching its Barstool Sportsbook app in Pennsylvania, putting Portnoy front and center with Barstool fans that Penn hopes to convert into loyal sports bettors.

“The question regarding PENN that we get from investors all the time is, ‘Can the momentum trade continue?’” writes Wieczynski. “In our view, the simple answer is yes. At this point, we believe investors have attributed $25-$35 of equity value per share to PENN’s Barstool acquisition and the long-term opportunity it could present.”

The Stifel analyst points out that online casinos and sports wagering are in their infancies, and that it will be years, perhaps even a decade, before investors figure out what estimates on those opportunities were proven right or wrong.

He also notes that momentum for Penn could extend with Election Day upcoming because as many as 10 states could “fast track or formally pass” internet gaming and sports betting legislation.

Land Based Casinos Still Key

With Portnoy as the new face of Penn and all the hype surrounding sports wagering, many investors may be overlooking the operator’s core competency: Running land-based casinos.

Wieczynski advises against forgetting about that part of the Penn National thesis.

“PENN management has indicated it believes it can return to 2019 earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR) levels, with only 90 percent of 2019 revenues,” said the Stifel analyst. “We believe that opportunity is even greater than what management is letting on today, and expect that, over time, it could reach 2019 EBITDAR parity off a revenue base that could be 75 percent-85 percent of 2019.”

Nearly all of the operator’s 41 casinos are reopened.