Casino Earnings: Why BofA Is Bullish On Penn National, Bearish On MGM

Casino stocks Penn National Gaming PENN and MGM Resorts International MGM reported quarterly earnings Thursday. Here's what a BofA Securities analyst has to say about the results. 

BofA On Penn National Gaming's Q3: Penn had a solid margin beat, with core upside potential and strong trends in the Barstool sportsbook brand, analyst Shaun Kelley said in a Friday note.

BofA reiterated a Buy rating on Penn National with an $85 price target. 

Penn National's third-quarter EBITDAR of $453 million was ahead of the analyst’s estimate of $425 million. The figure also came in ahead of Street estimates of $417 million.

The EBITDAR figure also eclipsed the preannounced range of $410 to $450 million, he said. 

Penn National reported a 1,000-basis-point improvement in its margin, and Kelley said the company could see further margin improvement over the next two years.

“Much of the investment case for PENN continues to center around Barstool and the sports betting/iGaming opportunity.”

Barstool had positive launch trends in October, and the numbers imply 10% to 15% market share for the platform, the analyst said. 

Penn also announced plans for Barstool Sports-branded entertainment destinations in key cities, which he said could help with brand awareness and customer acquisition.

The Barstool Sportsbook segment could be profitable in 2021, which is faster than expected for competitors, Kelley said. 

Related Link: Barstool Sportsbook Pennsylvania Launch Powers State To Record In September

BofA On MGM's Q3: Kelley reiterated an Underperform rating on MGM Resorts with a $15 price target.

“Restrictions in certain geographies and more destination-oriented properties lead us to believe MGM will likely trail other operators in the regional recovery,” the analyst said. 

Both Las Vegas and Macau were back to EBITDAR-positive territory in the quarterly earnings report, he said. 

Regional casinos have specific restrictions in some areas and are typically more destination-oriented properties, which are not strong during the pandemic, Kelley said. 

The material improvements in MGM’s sports betting business via its joint venture with GVC was a positive, the analyst said. 

MGM is "establishing itself as a solid #3 player behind DKNG and FanDuel," he said. 

BetMGM raised its full-year forecast from $130 million and now expects $150-$160 million in revenue, Kelley said. 

"We are Underperform rated as we are cautious on the Las Vegas Market and believe the increasingly complex corporate structure makes it difficult to see a strong path forward for the stock."

MGM, PENN Price Action: MGM shares were up 1.9% at $20.95 at last check Monday, while Penn shares were down 1.98% at $52.91.