BofA: Key Takeaways From DraftKings, Penn National, Hilton At Gaming And Lodging Conference

The 11th annual Gaming & Lodging Conference from Bank of America hosted ten companies. A look at the highlights from DraftKings Inc DKNG, Penn National Gaming PENN, and Hilton Worldwide Holdings Inc HLT.

Bank of America analyst Sarah C. Kelley shared takeaways from the conference on three companies.

DraftKings: The resumption of the major sports has been a big catalyst for DraftKings. Kelley notes DraftKings comments had a “very strong opening weekend with the NFL season.”

DraftKings also noted how newer markets are strong and New Jersey is seeing huge strength.

“Management still thinks this fall will present unique customer acquisition opportunities in existing markets and recent launches such as Colorado and Illinois,” Kelley said.

Other catalysts include the co-exclusive link-out deal signed with ESPN and legalization in more states.

Penn National: The key takeaway from the Penn National presentation was comments on the soft launch of the Barstool Sportsbook. “Penn has been impressed with the limited data they have seen so far,” Kelley said. “This weekend will be important to watch and we expect a lot of focus around early app download data and customer reviews.”

Penn National is seeking to be a top three competitor in terms of market share for the states it competes in for sports betting and iGaming.

“Barstool’s unorthodox marketing approach should allow for a meaningful CAC advantage compared to incumbents and potentially earlier profitability than for peers,” Kelley said.

Penn’s land-based casinos continue to see strength, which Kelley notes shows this is not “simply a product of unsustainable pent-up demand. Penn National believes it can work on long-term margin improvement with operational changes for its land-based casino business.

Hilton: The conference featured presentations from several lodging companies, but he one that stood out to Kelley was Hilton. “Our most positive takeaways were from Hilton which was more bullish than anticipated on margins as it rethinks its corporate G&A structure and simplifies brand standards for owners,” Kelley said.

The read on management at the conference showed September and October consistent with August levels with a continued improvement coming in November.

“Will likely take until 2022-2023 before a return to 2018/2019 levels of demand activity,” Kelley said. "Hilton can achieve record-level margins and free cash flow this cycle thanks to a combination of compounding unit growth and a lower/more efficient cost structure."

Cost reductions of 25% in G&A could become permanent and help margins going forward. Kelley believes Hilton will hit positive or break-even cash flow as early as the fourth quarter of fiscal 2020.