Feeling like you should let it ride on Penn National Gaming (NASDAQ:PENN)? You're likely not alone, not by a long shot. Mostly because Penn National Gaming itself is not a long shot. Far from it; in fact, new reports suggest that the company may have as much as 25% higher to go, and it's all thanks to one key point: “Portnoy momentum.”
What is Portnoy Momentum, and Why Does It Make For Good News?
Portnoy momentum, to hear some speak of it, has already given Penn National Gaming a real leg up, driving the company up over 165% in year-to-date figures. Portnoy momentum refers to the president of Barstool Sports, David Portnoy, who has made more than a few headlines of his own with his vociferous style of management.
Since Penn National Gaming bought a 36% stake in Barstool Sports, Penn National has been able to use Barstool Sports as its sports-betting app of choice, which gives it the necessary firepower to compete with other big names in the industry, like FanDuel and our own recent coverage target, DraftKings (NASDAQ:DKNG). It also allows Penn National to take advantage of the battering ram that is Portnoy himself, drawing attention to both companies at once.
Having Portnoy momentum on Penn National's side, meanwhile, is expected to pay off pretty handsomely. So handsomely, in fact, that Stifel recently boosted its price target on Penn National almost double its current level, going from $47 all the way up to $85.
Portnoy Momentum is Shockingly Infectious
Stifel is clearly happy with Penn National's chances, what with all that Portnoy momentum, but a look at the rest of the field suggests that Stifel is hardly alone. Our own research finds that there are 15 analysts right now with coverage on Penn National, and the consensus word is “buy”. Just one of the 15 analysts in place has a “sell” rating, and three carry “hold” ratings. The remaining 11 are all “buy”, which is a fine sign of future developments for Penn National.
Price targets, meanwhile, run the gamut; while the lone “sell” rating right now—Deutsche Bank—is carrying the lowest target at $22, the prices from there are all over the map. Nomura Instinet, for instance, carried a price target of $19 before raising it to $39 back in May. More recent changes have commonly been to the positive side; Goldman Sachs, for example, bolstered its target from $60 to $66. JPMorgan Chase & Co., meanwhile, bumped it up from $48 to $62.
A Powderkeg Waiting for a Match
While these price gains may look impressive, there's a key point that can't be overlooked. While sports betting itself is hardly new—I personally remember winning a $50 pool on the Super Bowl way back in my childhood via my dad's workplace—legalized, institutional sports betting is very much new. In fact, it's not even legal in many states yet, but it may well be before too much longer here.
With states all over suffering from huge tax losses thanks to the coronavirus lockdowns—and some states actually still suffering because they've barely budged on the removal of same—states will be frantic for new sources of tax revenue. Sports betting may be a great new catalyst to restart sluggish state budgets, especially given the sheer pent-up demand for such activity. Not only are people hungry for sports to start up, they're also hungry to try having a personal stake in the outcome of same.
Sure, Penn National and Barstool will have competitors here. We've already seen what kind of impact DraftKings is having on the market, and Penn National will have no shortage of competing casinos and websites eager to make their own bucks from sports betting. But this is a very big market, and the notion that each could become a regional favorite, dominant within its own smaller sub-market, isn't out of line.
If states start legalizing sports betting in quantity—and there's little reason to assume at least some won't—there's a massive new market just waiting to be opened up, and firms with the necessary infrastructure to step in immediately waiting in the wings. Penn National, thanks to its stake in Barstool, could easily benefit and drive the stock up to new levels.
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