Penn National Gaming (NASDAQ:PENN) is coming of a brutal 2021, in which it was one of the worst-performing gaming equities. But even after the stock shed roughly half its value last year, some analysts believe it may bounce back in 2022.
The largest operator of regional casinos appears on Bloomberg’s list of 50 stocks to watch this year, which was released on Tuesday. Bloomberg Intelligence analysts follow 2,000 companies across a variety of sectors and constructed the list using criteria such as growth outlooks, management, and upcoming launches of new products and services.
The market is underappreciating opportunities in 2022 for Penn National Gaming Inc., which runs wagering facilities in 20 states and made a big splash in Canada by acquiring Score Media & Gaming,” says Bloomberg Intelligence analyst Brian Egger.
The under-appreciated thesis is one making the rounds among analysts covering Penn, and it might have some merit. Following the January 2020 announcement of a 36 percent stake in Barstool Sports and the arrival of the coronavirus pandemic soon thereafter, analysts and investors immediately treated the operator as an online gaming entity. In some cases, they were losing sight of its deep portfolio of land-based casinos.
Penn National is the only gaming equity on the Bloomberg Intelligence list.
Penn 2022 Potential
Whether it’s concerns about the omicron variant of COVID-19. or fears about lingering inflation and the increasing likelihood that the Federal Reserve will raise interest rates three or more times this year, the broader gaming equity group is off to rough start this year.
Down 8.51 percent year-to-date, Penn isn’t immune to that trend. But the operator has levers to pull this year to potentially orchestrate a rebound. As Egger notes, Penn acquired Score Media, providing it access to what’s expected to be a hot Canadian sports wagering market. The casino operator shelled out $2 billion in cash and stock for Score last August.
Single-game sports wagering is now legal in the country. But it hasn’t ramped up in earnest in Ontario — the largest province — indicating there could be encouraging news in this department for Penn as 2022 moves along. Canada’s modernization of its sports betting landscape is expected to benefit an array of US-based operators. theScore is the leader in its home market, providing Penn with ready-made access into what’s expected to be a fast-growing sports wagering market.
“The company could benefit from new sportsbooks, Pennsylvania casino debuts, and margin gains. Penn’s 36 percent stake in Barstool Sports might move the needle as promotions ebb,” adds Egger.
Mixed Views on Gaming Equities
To start 2022, the consensus on gaming equities is that there isn’t one, as analysts are offering up mixed views across the board. Wall Street is bullish on some casino stocks, tepid on others, and advises investors to avoid some names in the group.
Earlier today, Truist analyst Barry Jonas lowered price targets on eight gaming equities, including Penn. He takes the regional casino operator to $70 from $95, though that new estimate implies upside of 52.6 percent from the Jan. 12 close.
Jonas says the new forecast reflects digital gaming and the Barstool unit “rerating” lower. But he adds there’s positive risk/reward potential with Penn at current valuation multiples.
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