By Sam Boughedda
JMP Securities initiated both Penn National Gaming (NASDAQ:PENN) and DraftKings (NASDAQ:DKNG) with Market Outperform ratings on Tuesday.
In separate notes, analyst Jordan Bender assigned a $52 per share price target on Penn and a $25 price target on DraftKings.
Speaking on Penn, the analyst told investors that Penn shares are "reflecting a financial crisis scenario," but they see upside for the stock.
"As shares are trading around $30, we believe the market is now reflecting a scenario where EBITDAR will decline 20-25% from 2023 consensus estimates for Penn's regional casinos. This would imply higher negative flow-through vs. the Great Financial Crisis," said Bender. "There has been no evidence in our checks in the regional markets of softness from inflation, gas prices, or the stock market impacting the consumer. That said, our downside analysis to EBITDA (Figure 5) still results in ~15% upside to shares, assuming no value implied to the online business."
He added the company continues to differentiate its online product from competitors and its casino margins "appear to be holding comfortably over 2019 levels."
Regarding DraftKings, Bender told investors the firm believes shares will see a positive re-rating as the company approaches profitability.
"DraftKings is a high-growth, vertically integrated, gaming technology company with a top-three market share in the U.S. High investment in its daily fantasy sports (DFS) product in the years leading up to PASPA positioned the company to successfully cross-sell its database into online sports betting (OSB)," said the analyst. . "We see DKNG growing revenue at a 19% CAGR through 2030. While we are in early innings of the online gaming sector, we think DKNG can maintain top share in NA online gaming, driven through cross-sell and its superior technology capabilities in SBTech, leading to profitable growth."
Bender added that the company is a "top player in a $43B market," and its platform is "ideal for future verticals."