Penn National Gaming (PENN): Confirmation of the Strong Start in PA - Rosenblatt

Rosenblatt’s analyst Bernie McTernan sees as a "positive" that Barstool may achieve around 16% market share in online sports betting (OSB) handle in PA during September since launch.

McTernan’s base case scenario projected a 15% market share for Barstool. Penn National Gaming (NASDAQ: PENN) acquired a stake in Barstool earlier this year.

“Barstool has been able to gain this share with spending minimal amounts on external marketing. Also, given the handle growth in the second weekend of operation we think early results in PA suggest a greater likelihood of our $300 bull case playing out (33% share, in addition to a larger TAM). Going forward, we expect Barstool to launch in new states allowing entry, like Michigan in November in addition to back filling states that already have legalized OSB and iGaming which we believe will be a focus in '21E,” McTernan wrote in today’s note.

The analyst still believes that Barstool is growing the market as the data shows that half of their registrants in the first weekend were first time OSB depositors.

“While Barstool has been an early adopter in embracing sports betting content, we also believe it is a positive for the industry that traditional media companies are incrementally embracing sports betting content which should be helpful in driving greater adoption of players and potentially state legislatures. While we believe Barstool is growing the market, the company took share from FanDuel, the market leader and to a lesser extent, smaller operators. We note, DKNG gained share of handle during September.”

McTernan adds that the hold rate was negatively impacted by higher-than-expected winning bets outcome in the NFL.

“The hold rate on total OSB revenue was ~3% in PA, relative to ~7% over the past year on average. We believe this lower hold rate has been driven by NFL over bets winning at a higher than normal rate. These bets won at a 60% rate through the first three weeks of the season, but have begun to normalize with the winning percentage down to ~54% during weeks 4 and 5 in aggregate and the unders had a higher winning percentage than overs during the 1pm games on Sunday 10/18.”

Rosenblatt rates PENN as “Buy” with a price objective of $90.00 per share.

For an analyst ratings summary and ratings history on Penn National Gaming click here. For more ratings news on Penn National Gaming click here.

Shares of Penn National Gaming closed at $71.01 yesterday.

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