Penn National stock has 250% upside thanks to its investment in Barstool Sports, according to one brokerage firm.
Craig-Hallum analyst Ryan Sigdahl initiated coverage of the stock on Tuesday with a street-high $75 price target.
That implies a 40% upside from its current $58 price, but Sigdahl said he saw potential for $200 in his bull case.
“Dave Portnoy is a marketing genius,” Sigdahl wrote. “If millions of people follow his pizza reviews and stock trading, how many do you think will follow his sports betting recommendations? We think a lot.”
Inside the numbers for Barstool and Penn
Sigdahl called for the Barstool Sportsbook app to take a 15-20% share of US sports betting and online gambling. That’s compared to a consensus estimate among analysts of around 10%.
Along with that top-three market share, Sigdahl called for market-leading 30% EBITDA margins thanks to low customer acquisition costs.
Sigdal estimated 10% of the 66 million ‘Stoolies’ could be converted to the new sportsbook app. And based on the initial $163m purchase price for Penn’s Barstool stake, customer acquisition costs would be $30-$35.
This compares to industry averages of $250 or more, although it appears to ignore any new bonusing or marketing costs.
Sigdahl also estimated 25% of bettors could then be cross-sold to casino.
“We believe our estimate is conservative, as DraftKings reports 50% cross-sell into iGaming,” the report said.
Penn has momentum
Penn stock is already up some 1,500% from its pandemic lows of around $4, with multiple analysts buying into the Barstool Sportsbook story.
However, there are plenty of risks that aren’t getting the same airtime as the bull case.
The app launch has already been pushed back from August to September and is expected to drop just before NFL season. That’s obviously the busiest time of the year and puts strain on established platforms, never mind brand new ones. And that will just be a single state — Pennsylvania — with more state rollouts to come in Q1.
Meanwhile, the fact that 62% of Stoolies already bet indicates they already have betting apps and may need some incentive to switch. Or maybe it just takes Dave Portnoy telling them to switch?
Either way, there are plenty of questions to be answered here.
Penn stock climbed 13% following the new report.
Screengrab via Getty Images