Penn National Cashes in on Barstool Euphoria With Share Sale
Penn National Gaming to Sell Shares After 170% Rally This Year
(Bloomberg) -- Penn National Gaming Inc. is taking advantage of its nearly three-fold surge this year, helped by its minority interest in Barstool Sports, to sell 14 million shares of its stock.
The offering, underwritten by Goldman Sachs, BofA Securities and JPMorgan, will start trading on Friday, according to a person familiar with the matter. The timing means there will be no price range governing the share sale. The offering, announced early Thursday, represents 11% of the company’s public float as of Aug. 31, according to data compiled by Bloomberg.
Penn’s shares traded to a record high Tuesday after analysts at Morgan Stanley said the Barstool Sportsbook betting app reached 21,000 downloads per day in its first weekend, breaking records set by competitors DraftKings Inc. and Flutter Entertainment Plc’s FanDuel.
The casino operator fell as much as 9.3%, the most in three months, on news of the stock offering and after an analyst downgraded shares to neutral. Macquarie’s Chad Beynon lowered his rating on the stock, citing the company’s leverage that could be viewed as “problematic” if there is another wave of coronavirus cases or if demand slows. He also said the current valuation ascribes $6 billion of value to Barstool and internet gaming alone.
“Investors were quick to jump into the stock as a way to play the sports betting and iGaming market, but we believe Penn shares are now priced to perfection ahead of a marketing frenzy in the industry,” Beynon wrote in the note. While he remains optimistic on the outlook for the casino industry in the long-term, a general return to normal would likely pull consumer spending from casinos and into other industries like restaurants and travel.
While the shares had gained 170% this year through Wednesday, they’d surged more than 1,400% from a March 18 bottom -- jumping to a record $76.62 from $3.75. The company’s $8.8 billion market value makes it larger than legacy casinos including Caesars Entertainment Inc. and Wynn Resorts Ltd.
A key part of the optimism for shares of Penn National has been its 36% interest in the controversial sports and pop-culture outlet Barstool Sports and the recently launched mobile betting app. The outlet’s millions of followers paired with social media celebrities in founder Dave Portnoy and contributers like Big Cat and PFT Commentator have driven bullish analysts to assign sky-high valuations and forecast big gains for the company.
While Barstool Sportsbook is only launched in Pennsylvania, the key debate centers on its ability to take market share from peers with less of a hold on customers while competing against heavyweights in DraftKings and FanDuel. The pair holds about 70% of the U.S. online sports betting market with Boston-based DraftKings having struck deals with Walt Disney Co.’s ESPN network and professional sports teams like the Chicago Cubs and New York Giants.
Macquarie’s Beynon started coverage of DraftKings with an outperform rating and a Wall Street-high price target of $65. His target implies shares will gain another 35% over the next year -- that would add to gains of 173% since the company started trading on U.S. markets in April.
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