Penn shares to soar 40% as Barstool becomes 'dominant sports betting' company, Rosenblatt says

Published Thu, Sep 10 20208:59 AM EDT

(This story is for CNBC Pro subscribers only.) With its unique content in a rapidly growing sports betting industry, Boston-based media company Barstool Sports can take Penn National Gaming's stock to new heights, according to Rosenblatt Securities. The firm initiated coverage of Penn National Gaming with a buy rating and a $80 per share price target, the highest target on Wall Street. Rosenblatt's target price implies a near-40% rally for the gambling company's stock from its closing price of $58.15 on Wednesday. The call sent shares of Penn National up more than 2% in premarket trading on Thursday. "With a unique, content focused strategy, we believe PENN has the opportunity to gain significant share in the online sports betting market at above peer margins driven by their Barstool partnership and physical footprint," Rosenblatt Securities consumer technology analyst Bernie McTernan told clients. "As sports betting moves from niche to mainstream, we believe Barstool can take advantage of this greenfield opportunity to be the dominant sports betting media company in the US." Shares of Penn National Gaming are up nearly 130% in 2020, despite the coronavirus pandemic forcing casino companies to shut their doors during the government mandated shutdown. Penn National's stock popped in January when it said it's taking a 36% stake in digital sports media company Barstool Sports — founded by Dave Portnoy — for about $163 million in cash and convertible preferred stock. The stake lets Penn National have a Barstool Sportsbook brand in retail facilities and on its interactive mobile and online products. Barstool will promote Penn's physical casinos and interactive offerings for up to 40 years, according to the news release announcing the deal. McTernan said Penn's success will come from leveraging Barstool's unique content to grab more users. "Similar to our thoughts on the traditional media industry, we believe content is king and should provide PENN with the opportunity to gain significant share," added McTernan. "If PENN can leverage Barstool's brand with a best in class and differentiated app, we believe there is potential for PENN to be the market leader." Barstool still faces challenges from incumbents in the space: DraftKings —which has seen its stock rally nearly 280% this year — and FanDuel. "In our base case we assume PENN is able to gain 15% market share in territories they launch in with higher margins given their physical footprint and leveraging the engaged Barstool audience," said McTernan. Of the 15 analysts on Wall Street that cover Penn National Gaming, 10 firms recommend buying the stock, according to FactSet. Four analysts have a hold rating and one analysts has a sell rating. Last month, Goldman Sachs started covering Penn National with a buy rating and the stock has surged nearly 17% since then. — with reporting from CNBC's Michael Bloom.

From left: David Portnoy, Erika Nardini of Barstool Sports and Jay Snowden, Penn National Gaming on CNBC's Mad Money, January 29, 2020.

Scott Mlyn | CNBC

(This story is for CNBC Pro subscribers only.)

With its unique content in a rapidly growing sports betting industry, Boston-based media company Barstool Sports can take Penn National Gaming's stock to new heights, according to Rosenblatt Securities.