Stocks can be a gamble in a market downturn, but what about actual gambling stocks? The U.S. is coming off a record year for gaming revenue and that momentum has carried into 2022. But casino stocks have tumbled in that time. Analysts recently raised their price targets for Penn National Gaming and DraftKings stocks, reversing a trend of cuts. Is that a sign their luck is turning around?
Price Targets Raised For PENN, DKNG Stock
On June 28, JMP Securities upgraded its price target for Penn National Gaming to $52 with an outperform rating. Penn National runs 44 casinos in the U.S. and Canada and operates a number of online sportsbooks. It also owns a 36% stake in Barstool Sports, the college-themed digital media company founded by Dave Portnoy. PENN stock is trading around $32.67, well below its all time high of $136.47 from last March. It's down 35% so far this year.
JMP analyst Jordan Bender values Penn's core business at $44 per share, which he says implies the market sees no value in Barstool. He believes Penn's online business alone is worth $8 per share.
For DraftKings, Bender has a $25 price target for DKNG stock with an outperform rating. He predicts the company will grow revenue 19% annually, thanks to its vertical integration and top-three market share in the U.S. Bender says the shares should see more positive ratings as it approaches profitability. On June 23, Morgan Stanley analysts gave DKNG stock a $31 price target with an overweight rating.
Big Betting Pools
As of May, 30 states and Washington, D.C., offered some form of legal sports betting, according to the American Gaming Association. Since it became legal in 2018, Americans have wagered over $125 billion on sports bets.
Some of the biggest players in the gaming industry include legacy casino companies like Caesars, MGM Resorts and Boyd Gaming, and bookies like Flutter Entertainment, which runs FanDuel, PokerStars and Europe's Paddy Power.
U.S. commercial gaming revenue was a record $52.99 billion for 2021, and that hot streak has continued this year. Nationwide, gaming revenue set a first-quarter record of $14.31 billion, according to the American Gaming Association. That's just shy of the all-time quarterly record of $14.35 billion set in the fourth quarter of 2021. Sports betting and iGaming revenue skyrocketed 65% and 54%, respectively, for the period. Sports betting grossed $1.58 billion in revenue and iGaming totaled $1.62 billion in Q1.
And gambling demand is only expected to grow. A study from Global Industry Analysts predicts the global market for mobile gambling to hit $214.8 billion by 2026, up from the estimated value of $79.5 billion for 2021.
The House Doesn't Always Win
Despite raking in winnings, gaming companies have been landing on red more than black. So far this year, CZR stock has dropped 53%, MGM stock is down 33% and BYD stock is down 20%. Dublin-based PDYPY stock hasn't been spared either, despite being one of the largest European bookies for the world's most popular sport. PDYPY stock is down 35% so far this year.
Surprisingly, the losses haven't been caused by the market downturn. In his PENN stock update, Bender noted there hasn't been any evidence of softness from inflation, gas prices, or the stock market impacting consumer betting.
One of the main concerns is the lack of hands to deal at tables. Casino visitations are still below their pre-pandemic levels. Visits to Las Vegas, the most popular destination, have recovered but are still down 4.5% from 2019, the AGA says.
PENN Stock, DKNG Stock Analysis
Penn National recorded EPS of 29 cents on revenue of $1.56 billion for Q1. The results prompted PENN to raise its sales expectations to range from $6.15 billion to $6.55 billion. The company had $5.9 billion in revenue for 2021. Sales from PENN's online gaming segments, including iGaming and the Barstool Sportsbook app, were up 63% over the year to $141.5 million in Q1.
Bender says PENN stock is reflecting a "financial crisis scenario," where the company's EBITDAR drops 20%-25% from 2023 consensus estimates for its regional casinos.
In February, Penn National announced a $750 billion stock buyback program and has spent $175 million on share repurchases through the end of March. Penn National is also planning to buy the remainder of Barstool Sports for an additional $287 million by the end of 2023.
It's best to walk away from PENN stock for now. The company has a measly Composite Rating of 31 out of a best-possible 99, meaning it lags in a number of key technical indicators. PENN stock is only trading right around its 50-day and 10-day moving averages, according to MarketSmith chart analysis. It has weak earnings growth with an EPS Rating of 40. PENN stock has a dismal Relative Strength Rating of 17, which means it's underperformed a majority of its peers in the IBD database over the past year. Its relative strength line is trending a lows not seen since May 2020.
And when it comes to DraftKings, know when to run. While DraftKings may surprise analysts by topping revenue estimates, it still hasn't turned a profit. DraftKings has only reported losses since going public in 2020. And it could be awhile before DraftKing's earnings get in the black. The company reported a loss of $1.07 per share on $417 million of revenue in Q1. That's down from a loss of 80 cents per share on $473.3 million in revenue from the prior quarter.
The technical analysis for DKNG stock looks even worse than PENN. DKNG has a 14 Composite Rating and an EPS Rating of 19. Its RS Rating is only 9.
You May Also Like:
Stocks' Best Two Weeks Start Now (Here Are The 7 Top Ones To Own)
Is Penn Stock A Buy After Missing Earnings Amid 'Frenzied' Competition?
Is MGM Stock A Buy As It Narrows Losses And Expands Into Europe?
