Penn Analysts Defend Stock, Call Portnoy Controversy Distraction

Posted on: November 5, 2021, 09:58h. 

Last updated on: November 5, 2021, 11:09h.

Todd Shriber @etfgodfather Read More

Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Shares of Penn National Gaming (NASDAQ:PENN) are bouncing back Friday. The rebound comes a day after the stock was drubbed following a disappointing third-quarter earnings report and controversy swirling around Barstool Sports founder David Portnoy’s private life.

Penn stock plunged more than 20 percent Thursday, a decline hastened by an Insider expose detailing raunchy sex acts between Portnoy and several women. For now, no alleged crimes are being reported, and it appears the encounters were consensual. In midday trading, Penn shares are higher by eight percent on volume that’s more than double the daily average. That a day after the stock slumped to a 52-week low.

In reports out today, sell-side analysts are using terms such as “dislocation” and “distraction” to describe the impact of the Portnoy situation on Penn stock. To be clear, no analyst is making light of the allegations brought by the women.

The sharp selloff from @stoolpresidente (Portnoy’s Twitter handle) article reflects a huge dislocation from actual biz fundamentals,” Prescience Point wrote in a tweet.

The research firm says Penn’s core gaming business is worth $75 a share — well above the $63 area at which it currently resides — and says Barstool Sports is a free option on the stock.

In January 2020, the regional casino operator paid $163 million in cash and stock to purchase a 36 percent stake in Portnoy’s media company. Penn has rights to eventually own Barstool outright at a valuation of $450 million.

At Least One Cautious Take on Penn Stock

Since Penn and Barstool joined forces, Portnoy has been widely viewed as the face of the gaming company, although he holds no official executive title. Given his brash, outspoken personality — one that runs counter to a climate where cancel culture and criticism of toxic masculinity are prevalent — Portnoy can be viewed as inviting controversy.

While this has clearly been a Penn risk since acquisition, the article (alleging inappropriate behavior) appears to potentially have more ramifications which could raise around the brand support and the valuation,” said Macquarie analyst Chad Beynon in a note to clients today.

He rates Penn “neutral,” with an $80 price target. This isn’t the first time Penn shares suffered at the hands of Portnoy’s private life. In April, the stock briefly tumbled following the emergence of a sex tape featuring Portnoy. He claimed it’s the third of him floating around on the internet.

Interestingly, Deutsche Bank said today Thursday’s reaction by Penn stock to the Insider article was too harsh, and that the piece is just a near-term distraction.

Barstool Pivotal for Penn Demographics

Penn has other media levers to pull in addition to Barstool. For example, the casino operator recently closed its $2 billion cash and stock acquisition of Score Media and Gaming, giving it a foothold in Canada.

Still, Barstool is essential to Penn’s efforts to connect with the coveted millennial and Gen Z demographics. It appears that the relationship is bearing fruit.

PENN is focused on near-term profitability vs. aggressive marketing aimed at gaining short-term handle share,” according to Wells Fargo. “The company noted retention has been encouraging from early cohorts; Barstool also recently introduced Parlay+ (same game parlay) and shareable bet slips. In iGaming, live-dealer recently launched in New Jersey. Barstool Sportsbook now live in 10 states and iGaming is live in three (Michigan, New Jersey and Pennsylvania).”

Thus far, Penn said it’s aware of the Insider expose, that it’s taking the matter seriously, but that it doesn’t comment on the private lives of its staffers.