Analyst Bullish On Penn National Despite Offering: 'Initial Barstool Data Strong'

Penn National Gaming, Inc PENN shares are up 281.9% in the past year, but they have struggled in the last week following the company’s $854 million equity offering last week. On Monday, one analyst said investors shouldn’t sweat the offering given positive initial data on the recently launched Barstool Sportsbook app.

The Penn Analyst: Bank of America analyst Shaun Kelley reiterated his Buy rating and $85 price target for Penn.

The Penn Thesis: Some investors were skeptical after Penn followed the launch of the Barstool Sportsbook app with a large equity offering priced at $61 per share. The company said the proceeds will be used for investments such as technology, building brick-and-mortar sportsbooks and improving the Barstool brand.

In addition to the offering, Penn also announced preliminary third-quarter results that exceeded analyst expectations, including quarterly EBITDAR of between $410 million and $450 million.

On Monday, Kelley said Penn investors shouldn’t lose sleep over the dilutive equity offering given it paves the way for more growth opportunities.

See Also: Short Sellers Have Lost Nearly $1.3B On DraftKings, Penn National

Through Sept. 21, the Barstool Sportsbook app had 180,000 downloads, which Kelley said is a strong start compared to similar app launches by DraftKings Inc DKNG and FanDuel.

“The real key is this was accomplished with zero external marketing spend, highlighting the unique audience Barstool provides and the ability of the brand to convert that audience to customers at a much lower CAC,” Kelley wrote in a note.

Bank of America is now targeting about $400 million in net 2022 revenue from the Barstool brand.

Benzinga’s Take: After the huge rally in the last year, Penn’s valuation may seem stretched at current prices. However, sports betting in the U.S. could be a significant growth story in the coming years, and Barstool is positioned to be a market leader. Kelley anticipated Michigan could be the next major target market for Barstool.