Published: April 27, 2022

Penn National Gaming ‘Presents an Opportunity.’ The Gambling and eSports Company Gets an Upgrade

Shares of Penn National Gaming were spiking Monday after the gambling and esports company received an upgrade from Morgan Stanley.

Morgan Stanley’s Thomas Allen believes Penn National Gaming (ticker: PENN ) has an attractive valuation, prompting him to raise his rating on the stock to Overweight from Equal Weight. He trimmed his price target to $51 from $55.

Penn stock was up 3.4% to $37.79 on Monday. The shares have lost 27% this year, which Allen attributed to mixed earnings results and declining market share in key states. The recent underperformance “presents an opportunity,” Allen wrote on Monday.

For one, the company has a unique customer acquisition advantage compared with its peers. In addition to a legacy database of casino players of more than over 25 million, Penn owns popular online platforms like Barstool Sports and theScore that can help gain online betting market share.

In addition, Penn’s first-quarter performance thus far indicates customers have been resilient, even as macroeconomic trends have raised concerns about the health of the consumer. Recent casino openings in Pennsylvania have outperformed Allen’s revenue forecasts, leading him to believe the company is in a good position to beat expectations.

“We see PENN’s US business generating break-even profits this year, well aheadof other major US competitors which should be given more credit in a rising interest rate environment,” he wrote.

Penn could also continue gaining traction in Canada, Allen added. Recent analysis suggests that company is leading the market in app downloads and its performance in the Canadian market could be undervalued by investors, he wrote.

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