Investment firm Stifel recently raised its price-target for casino operator Penn National Gaming by 70%, saying that the company’s boost from buying into Dave Portnoy’s Barstool Sports earlier this year will continue to drive its stock higher.
Since making a large investment in Barstool Sports earlier this year—acquiring a 36% interest in the sports media company for $163 million— Penn National Gaming has seen its stock soar over 130%.
Barstool Sports is led by founder Dave Portnoy, who became a revered celebrity-like figure for many retail investors—especially in the Robinhood crowd—as he pivoted from sports to day-trading stocks during the coronavirus pandemic.
Stifel has a buy rating for Penn National stock and raised its price target to $85 per share from $47, which implies an upside of 25% from the stock’s closing price of $68 on Wednesday.
The firm admitted that its previous estimates on the long-term potential of the company “were way too conservative and needed to be revised higher” given the “considerable momentum” in sports betting.
Stifel says that the so-called “Portnoy Momentum Trade” still has room to run and as much as half of Penn’s current stock price can be attributed to Barstool.
“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 firm argued.
The recent launch of the Barstool Sportsbook app, which is set to compete with the likes of DraftKings and Fanduel, should allow Penn’s shares to “continue riding the sports betting euphoria wave higher,” Stifel said.
“Although the valuation might appear stretched when evaluated against historical norms, we view Penn as a ‘story’ stock at this point, and thus find valuation less important to our overall investment thesis,” Stifel analysts said.
What To Watch For
With many state and local governments facing budget shortfalls due to the coronavirus pandemic, they could turn to sports betting as a way to gain more revenue and tax dollars. Stifel predicts that up to 10 states could legalize sports betting or online gambling over the next few months as a result, which would provide significant upside for Penn’s stock.
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