Rosenblatt Securities Initiates Penn National Gaming (PENN) with a Buy Rating and Street High Price Target

Javier Frausto

On Tuesday, Rosenblatt Securities initiated coverage on Penn National Gaming, Inc. (PENN) with a Buy rating and street high price target of $80. As sports betting moves from niche to mainstream, the analysts believe that PENN can leverage their partnership with Barstool Sports to take advantage of an under-appreciated total addressable market (TAM) to be the dominant sports betting media company in the United States. If PENN is able to leverage the Barstool brand correctly, there is potential for PENN to be a market leader.

Their differentiated customer acquisition strategy, through their partnership with Barstool, will set PENN apart. DKNG and FanDuel are the leaders of online betting given their past track records, but more importantly, PENN is just getting started and is already on the heels of DKNG and FanDuel. In their base case scenario, Rosenblatt assumes a 15% market share opportunity for the markets in which PENN operates, noting the ability to realize higher margins given their physical footprint and leveraging Barstool audience.

Given that more states are allowing the legalization of sports betting, Rosenblatt expects the betting content to move from niche to mainstream. The monthly active users (MAUs) of Barstool aligns greatly with sports betters and this partnership has the potential to follow in the footsteps of other great media partnerships, including Michael Jordan and Tiger Woods with Nike and Oprah with Weight Watchers (WW). Barstool has a wide reach of a younger audience to potentially be the leader in the sporting betting industry. To leverage the Barstool brand, the company is set to launch an app where customers can bet on while also having differentiated content with social media.

Barstool’s expansive omnichannel gives a wide reach of an engaged fan base. There are over 66 million monthly unique visitors on Barstool’s social media pages. As alluded to above, the branding to grow this market share is there. As the analysts noted, we saw WW go from -20% YoY in 1Q15 to nearly 30% YoY growth in ‘18 after the Oprah partnership, we can potentially see a similar thing happening for PENN and Barstool. Barstool has already done this for High Noon, seeing their hard seltzer product generate massive revenues since the partnership.

At the same time, we have to take into consideration the risks concerning PENN and the “bear case” scenario. Barstool has a large following but the traffic it currently drives to the betting apps is below expectations. If sports betting and iGaming legislation doesn’t gain traction, the TAM would be much smaller than anticipated, which will see PENN have a smaller market to enter. Anti-gambling legislation would cause backlash towards the gambling industry as a whole and COVID-19 has taken a huge toll on sports. Sports are coming back slowly, but the impact of COVID-19 may see the sports industry as a whole take a huge backseat for the foreseeable future.

PENN is up roughly 6.0% at the time of publication.

Disclosure: At the time of publication, I have no positions in any of the securities mentioned in this article. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for creating this article (other than from TheStreet) and have no business relationship with any company whose stock is mentioned in this article.

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Comments (6)
No. 1-3

I currently hold PENN and I'm excited to see where it's heading from here


that is veryyy optimistic !

Nikhil Gunderia
Nikhil Gunderia

It's crazy that PENN has a price target that's equivalent to if not greater than that of Draftkings. It looks like PENN might be the future