DraftKings, Penn Earn Cautious, But Optimistic Analyst Commentary

Posted on: December 8, 2021, 09:50h. 

Last updated on: December 8, 2021, 11:00h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

In recent weeks, DraftKings (NASDAQ:PENN) and Penn National Gaming (NASDAQ:PENN) are among the most repudiated sports betting equities. But at least one analyst is cautiously optimistic on the pair.

Penn National
CBRE analyst John DeCree in a February interview. He’s tepid on DraftKings and Penn National but sees some positives for both stocks. (Image: CNBC)

CBRE analyst John DeCree is resuming coverage of a slew of gaming stocks, including DraftKings and Penn National. He rates both “hold,” but he’s bullish on the long-term prospects for the internet casino and online sports wagering industries.

DeCree has a $36 price target on DraftKings, implying upside of 15.1 percent from the Dec. 7 close. His price projection on Penn is $60, which is 17.6 percent above where the stock closed on Tuesday. The analyst is more constructive on casino operators with exposure to digital gaming, but he favors those with Las Vegas exposure. While it’s the largest regional casino operator in the US, Penn doesn’t have a Strip venue, and DraftKings doesn’t operate any land-based gaming venues.

DeCree’s calls on DraftKings and Penn arrive during a lengthy period of weakness for the once high-flying duo. The online sportsbook giant is down 55.38 percent from its 52-week high, while the Hollywood casino operator resides 63 percent below that level.

Penn Problems Could Abate

The CBRE analyst acknowledges recent controversy surrounding Barstool Sports founder David Portnoy may be temporarily keeping institutional investors away from Penn stock.

Last month, a lengthy expose published in Insider revealed tawdry details of Portnoy’s dalliances with multiple women, leading to a massive intraday tumble for the stock. Portnoy is not being charged with any crimes because the encounters were consensual, and he maintains the Insider article is no more than a hit piece.

The prevailing consensus in the analyst community in the wake of the expose is a cautious tone on Penn stock while acknowledging the situation is a distraction. That seems to align with DeCree’s thinking on the shares, as he says he’s waiting for “inflection points” to bump DraftKings and Penn to “buy” ratings.

Penn National owns 36 percent of Barstool Sports and has rights to eventually acquire Portnoy’s company outright.

Long-Term View on DraftKings

Regarding DraftKings, the CBRE analyst says the company continues to execute well. But well-heeled competition is an issue. Translation: Rivals like BetMGM and Caesars Entertainment (NASDAQ:CZR) have the resources to play the long game in sports betting, and have other businesses to offset any weakness encountered in the digital space.

DraftKings is drawing criticism from at least one well-known investor, who sees an extended timeline to profitability and says the company is overvalued.

For his part, DeCree is optimistic about DraftKings’ long-term prospects. But his $36 price target on the stock is well below consensus.