Morgan Stanley Rates Penn National Stock “Overweight”

Future looking strong for PNG. Downloads in Canada of theScore Bet were solidly ahead of the competition. Company’s market share in US markets is stabilizing.
logo for penn national gaming on a navy blue background
April 26, 2022

We continue to believe Penn National has a unique customer acquisition advantage over peers with its ownership of Barstool Sports in the US, theScore in Canada, & its more than 25 million legacy database of casino playersAnalysts with Morgan Stanley issued a favorable outlook for Penn National, in part due to an internal analysis that shows downloads in Canada of theScore Beta sports betting app the company acquired last fall — was solidly ahead of all its competitors.

In a note to clients Monday, Morgan Stanley — specifically, Analyst Thomas Allen and Research Associates Nicholas DeValeria, Alexandra Ratzker, and Dan Lee — upgraded Penn National stock to an “overweight” rating, meaning they expect stock in the company will perform better in the future.

Stock in Penn National and other gaming companies were hammered by the pandemic but are showing signs of recovery. Penn National is scheduled to announce its Q1 2022 earnings on May 5.

“We continue to believe Penn National has a unique customer acquisition advantage over peers with its ownership of Barstool Sports in the US, theScore in Canada, and its more than 25 million legacy database of casino players,” the analysts wrote.

Morgan Stanley projects Barstool will secure a 6.75% market share of online sports betting and casino gaming in the US. The firm also lauded improvements to the online casino part of Penn National’s platform — which was initially focused on the sports betting product at the expense of online casinos.

“We see Penn National’s business generating break-even profits this year, well ahead of other major US competitors which should be given more credit in a rising interest rate environment,” the analysts wrote.

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Strong Start in Canada Sports Betting Market

Morgan Stanley said a proprietary analysis found downloads of Penn National apps were off to a strong start in Canada, with theScore Bet securing a 35% share of downloads in April.

“Canada will be a highly competitive market given the amount of legacy gray market operators but getting customers on apps early has proven a successful strategy in most US markets to date,” the analysts wrote. They forecast theScore will achieve a 6.8% share in online sports betting and casino gaming in Canada.

Penn National acquired Toronto-based Score Media and Gaming, aka theScore, in a cash-and-stock deal valued at $2 billion in October 2021.

“While theScore guided to 10-20% share in March 2021, we believe [Wall Street] has much lower expectations now given valuation, theScore’s low (less than 1%) share in the US, and Penn National management’s more tempered recent guidance,” the analysts wrote.

On that last point, they pointed to Penn National’s Q4 2021 earnings call on February 4, where executives said they were targeting a greater than 10% market share in online sports betting and a 5-10% stake in the online casino vertical.

“We believe double-digit share in sports betting and mid-single-digit share in iGaming would be received well.”

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US Sports Betting Market Share Stabilizing

The analysts added that, while Penn National’s share of gross gaming revenue has historically peaked whenever it entered a new market — such as in Illinois, Michigan, and Pennsylvania — and dropped from there as the markets matured, they have seen the company’s market share in the US stabilize recently.

That aligns with the company’s performance in March, according to revenue data from three state regulators.

In its home state of Pennsylvania, Hollywood Casino — which includes Barstool Casino PA, BetMGM Casino PA, and DraftKings Casino PA — was the top online casino operator in terms of revenue, grossing a record $44.8 million. Barstool Sportsbook was the fourth-largest sportsbook in terms of revenue at $2.8 million and a 6.3% share of the market.

Barstool was the sixth-largest online poker and casino operator in terms of revenue in Michigan, grossing $5.2 million in the combined vertical. Meanwhile, Barstool Sportsbook had the fifth-largest handle with $29.6 million in bets placed and 6.6% of the market.

In New Jersey, Barstool Casino NJ is on the Resorts license, but Barstool Sportsbook is on the license of Freehold Raceway. Resorts was the third-largest in online casino revenue ($30.2 million) while Barstool Sportsbook NJ led Freehold Raceway to be the fifth in sports betting revenue ($1.4 million).

The analysts were also impressed with Penn National’s rollout of two mini-casinos in Pennsylvania — Hollywood Casino York in August 2021, and Hollywood Casino Morgantown in December 2021. “Revenues have been significantly ahead of our prior expectations,” the analysts wrote.

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