We recently published a list of 10 Best Sports Betting Stocks to Buy Now. In this article, we are going to take a look at where PENN Entertainment, Inc. (NASDAQ:PENN) stands against the other sports betting stocks.
A U.S. Supreme Court decision in 2018 set off a sports betting boom that legalized wagering in 38 states and the District of Columbia. North Carolina legalized sports betting on March 11, and within the first 12 hours of the law’s implementation, the state wagered a remarkable $23.9 million. Of these, 30 states allow online sports betting, so if you’re within state lines, the thrill is only a click away. While most states have a minimum age of 21, a handful allow 18 or older.
Consumers can now bet from anywhere as long as they are physically present in the state due to the growth of online platforms. As a result, Americans legally wagered a record $119.84 billion on sports in 2023, up 27.5% from 2022, per the American Gaming Association’s Commercial Gaming Revenue Tracker, ushering in a new era for sports gambling in the US. Consequently, the sports betting industry’s revenue grew to $10.92 billion, a 44.5% YoY increase from 2022. The expansion was predominantly driven by continuing maturation in most existing markets as well as some new ones, including Massachusetts and Ohio. The trend is expected to continue, and in the second quarter of 2024, American sports wagerers wagered $31.75 billion. Revenue from it was $3.16 billion for the quarter, increasing 35.3% from the previous year.
While the United States is at the top of the Biggest Gambling Countries in the World, there are still 12 states in the US that do not allow legal sports betting, including California, Texas, Idaho, Utah, Minnesota, Missouri, Alabama, Georgia, South Carolina, Oklahoma, Alaska, and Hawaii.
Nonetheless, sports betting is one of the fastest-growing industries in the world. Jane Bokunewicz, director of the Lloyd Levenson Institute at New Jersey’s Stockton University, which studies the gambling industry, points out that legal sports betting could be appealing to people with limited discretionary budgets since it offers a new and inexpensive form of entertainment.
Goldman Sachs Research also states that the U.S. sports betting market is expected to grow significantly and, once it reaches maturity, could reach $45 billion each year. This growth will be prompted by new state openings and a growing share of consumer spending on sports betting, per Ben Andrews, head of leisure and travel research at Goldman Sachs in Europe, where legal sports betting has a longer history.
When it comes to consumer spending on sports betting, gambling interest reflects a sport’s popularity, with NFL football dominating in the United States. In 2023, over 73 million Americans said they planned to bet on the NFL season, which is almost 60% more than the previous season, according to a survey conducted by the American Gaming Association.
Globally, nearly one-third of people worldwide engage in sports betting at some point in their lives, based on the TGM 2022 Global Gambling and Sports Betting Survey. In 2021, 17% of people bet on sports with friends (mainly on football and horse racing), while 35.44% bet on sports, and 20.2% bet online/through applications.
According to Deloitte’s 2024 Sports Industry Outlook, generative AI is projected to dramatically impact sports betting in the next 12-18 months. The way sports fans interact with sports betting will probably undergo a revolution because of innovations in domains like personalized betting experiences, odds calculation, real-time data analysis, and improved prediction models.
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The bright and neon lights of a glitzy casino, revealing the company’s iCasino and gaming properties.
PENN Entertainment, Inc. (NASDAQ:PENN)
Number of Hedge Fund Holders: 30
PENN Entertainment, Inc. (NASDAQ:PENN) specializes in sports betting and offers integrated entertainment and sports content. The Northeast, South, West, Midwest, and Interactive are the company’s five operating segments.
It runs an online sportsbook and casino under the Score Bet Sportsbook and Casino and Hollywood Casino, L’Auberge, ESPN BET, and iCasino brands. Moreover, the company has more than 43 properties in 20 states, providing iCasino in five and online sports betting in 18 jurisdictions.
Greenlight Capital stated the following regarding PENN Entertainment, Inc. (NASDAQ:PENN) in its first quarter 2024 investor letter:
“We established a new medium-sized position in PENN Entertainment, Inc. (NASDAQ:PENN) at an average price of $22.69 per share, but, for reasons discussed below, the shares fell to $18.21 by quarter-end. s referenced above, we established a medium-sized position in PENN, an operator of regional casinos. PENN’s current enterprise value is just over $4.3 billion, and based on an 8-12x multiple of free cash flow, we value their land-based casinos between $4.3 billion and $7 billion. PENN also competes in online gaming, particularly sports betting, and we believe the market ascribes a substantial negative value to that effort. To be fair, the online segment has a checkered history. In 2020, PENN acquired a minority stake of Barstool Sports, and three years later agreed to purchase the rest, for a grand total of $551 million. That acquisition was a complete failure, and the company wound up abandoning the investment. It also spent $2 billion in 2021 to acquire Score Media and Gaming to establish a better online sports betting platform. Last year, it entered into a deal with ESPN to launch and operate ESPN BET.
Successful sports betting franchises can have substantial value. DraftKings is the leader and is valued at over $20 billion. Through ESPN BET, PENN aspires to achieve top-three status in the industry. Given that the market is ascribing negative value to ESPN BET, it’s fair to say that after the Barstool fiasco, investors have serious doubts about the company’s strategy and management’s competence to execute. Were the market to credit PENN with merely 15% of DraftKings’ value, that segment alone would be worth $20 per share.
PENN launched ESPN BET last November. The launch was largely successful and led them to achieve a top-three user share by adding one million customers in less than two months. This result was much better than expected and enabled PENN to project turning a profit a year earlier than its previous guidance. To accomplish this, the company spent more on upfront marketing to acquire customers than it had indicated. Though we had believed the rationale for increased spending was well understood, the market focused on the higher spend and punished the shares.”
In its second-quarter 2024 results, the company reported record net gaming revenue in its Interactive business as well as consistent success in the face of fresh competition and a difficult macroeconomic environment.
Craig-Hallum raised his recommendation for PENN Entertainment from Hold to Buy with a $30.00 price target. Aside from the growth drivers found in its collaboration with ESPN Bet and its future retail initiatives in 2024 and 2025, the company’s assets’ value and the favorable market conditions drove the upgrade. However, Raymond James downgraded PENN Entertainment from Outperform to Market Perform recently, citing worries about the profitability of the company’s digital operations as well as the impact of activist pressure and rumors of mergers and acquisitions on the stock.
Notwithstanding the obstacles posed by macroeconomic conditions and rivalry, PENN is steadfast in its pursuit of value enhancement and committed to its present plan of action, which makes it one of the Best Sports Betting Stocks to Buy Now.
Parag Vora’s HG Vora Capital Management is the largest shareholder in the company, with 14,500,000 shares worth $280.65 million.
Overall PENN ranks 8th on our list of the best sports betting stocks to buy. While we acknowledge the potential of PENN as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than PENN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
