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The “Portnoy Momentum Trade” can push Penn National higher, says analyst

Stifel analysts led by Steven Wieczynski raised their price target on shares of Penn National, on the belief that the “Portnoy Momentum Trade” will continue. The firm also expects the sports betting euphoria to continue through the fall, thanks in part to “a number of states to pass gaming legislation that should keep the sports betting/iGaming momentum rolling.”

Video Transcript

MYLES UDLAND: All right, welcome back to The Final Round here on Yahoo Finance. Time now for our call of the day, and today, we are talking about Stifel's latest note on shares of Penn National. The firm maintains a buy rating, upgrading its price target on the stock to 85 bucks a share.

And Dan Roberts, it's right there in the title. We're no longer dancing around the issue with Penn here. They say, can the Portnoy momentum continue? And I think it really speaks to the way that this stock. And, you know, Stifel says it in the note too, and I think it is a very nice admission to hear from a sell-side analyst, where it's like, look, it's a story here. Maybe it plays out in the next 10 years.

But the fact is the CEO, or I guess, what, the founder of the main portfolio company for Penn, is out on Twitter all day talking about how great Penn is and how great, you know, all his fans are. And it's a Dave Portnoy story, right? Like, that, to me, has explained probably the last 20 bucks in the stock.

DAN ROBERTS: Well, just don't tell that to the other people at Barstool Sports, which has become a pretty large media organization. I agree with you to an extent. It's funny, there are a few soundbites I want to share here from this note that I think you can kind of choose which way you want to go with it. Maybe they should give you pause, or if you're rah-rah Barstool, you're probably rah-rah on Penn.

But first of all, as you mentioned, even calling it the Portnoy momentum, let's remember, wild story, but it happened, a few weeks ago, do you remember Dave Portnoy said he was sick. And he was coughing in one of his videos. And the stock fell, like, 5% that day. And literally, the Bloomberg Terminal headline was, Penn gaming falls on Portnoy's sneeze.

So, you know, you're putting a lot on one guy, first of all. Now second, as you mentioned and as I just alluded to, he's the founder of the site. He's no longer the CEO, that's Erika Nardini. And also, there are a lot of big personalities and faces at the site as the site has really embraced sports betting. So putting it all on him is a little interesting, and there's a drawback to that.

I mean, because Penn bought a majority stake in Barstool. Well, Barstool, as a media organization, has begun going all in, even more than before, on betting. You know, they've got podcast hosts-- successful podcast hosts, you know, social video people, writers, and they're all talking betting. Well, this puts it all on Dave Portnoy.

So those are a couple of caveats. And then finally, this is more interesting to me, a larger comment on the betting space right now, it says, expect sports betting euphoria to continue through the fall. That's according to this note. And let's talk about that sports betting euphoria. Because interestingly, we've just had the first week of the NFL season.

An American Gaming Association, AGA's survey, right before kickoff of the season, found that a lot fewer fans said in a survey that they planned to bet on this NFL season. Now, of course, discount all surveys and polls, who knows, people will say anything. But it was a little surprising, and it suggested, well, actually, maybe the betting interest isn't as big as usual.

But the same survey found that among people who identify as betters, they were more excited for this season than non-betters. My point being only that, you know, it's not necessarily a guarantee that the betting euphoria will continue. And of course, let's look over DraftKings, which, just today, shared with Yahoo Finance that it's week one customer acquisition numbers, which, of course, is a huge week for new sign ups, was its biggest since 2015.

We all remember what 2015 was like for those DFS companies. And in some ways, 2020 is feeling again like 2015 with the aggressive advertising. But all that being said, these companies, Penn Gaming, DraftKings, FanDuel, William Hill, and the Casino names are launching and announcing new betting partnerships like crazy.

But what will it all amount to? Does it mean more betting on the NFL? Not necessarily, especially because the NFL at the league level still doesn't want to overtly adopt betting. All the new partnerships they announced they say are just marketing partnerships. It's not for betting yet. So, you know, there's reason for a little cold water here.

But certainly, Penn has done very well since it bought the majority stake in Barstool.

SEANA SMITH: Yeah, and Dan, it's going to be interesting if the leagues change their position on that anytime soon. But also, I want to tie it back to what Stifel said, just in terms of the number of states passing gaming legislation. Because that's something that really-- it was mentioned a few times in this note. And Dan, I know you've talked about this numerous times here at Yahoo Finance.

But it's interesting just in terms of what Stifel said. And they tied it directly back to what we've seen play out over the last six months from the pandemic, saying that because of the budget shortfalls that so many of these states are facing at this point, they're going to be more likely to pass a gaming legislation because it will generate extra revenue. And Stifel estimating, I think it was just around 10 states that could fast track or pass sports betting legislation come this November because of exactly that.

So obviously, that's something that could help Penn Gaming and some of its competitors here in the short term. And Myles, I think you mentioned this off the top. Another thing that stuck out to me in this note was Stifel's view that Penn is a story stock. So what that means is it's basically based on expectations of outperformance.

What could happen, any good news surrounding the gaming space that could potentially continue to drive this sector forward and some of its competitors. So because of that, it's so much on the fundamentals that this valuation is based on, more so on what could happen. And Dan, that ties into what you're talking about just in terms of a lot of the hype and a lot of the excitement around sports betting right now.

A lot of the facts the maybe these states-- where states could pass legislation, that's at least a short term boost for Penn Gaming and also some of its competitors.

DAN ROBERTS: Well, and the turned story stock is so perfect, you know, not just for Penn, but we've talked about this with DraftKings. There have been days where DraftKings swings wildly up or down based on one development with sports. And you think, well, OK, that is cause for excitement or that is cause for alarm. But it isn't usually ever cause for, you know, major concern about the business.

And yet, you know, the day that one MLB team had its game canceled because of COVID cases, DraftKings stock took a dive. Then on a different day, the day that, you know, the Big Ten, you know, what's the word I'm looking for, completely turned around, did a reversal on its posturing and said, OK, we will play, DraftKings saw a bump. So these are names, these betting names right now, that really swing based on just a headline.

And we know some other story stocks, don't we? Things like Beyond Meat. Beyond Meat, new partnership with McDonald's in Canada, stock up 20%. Peloton, in many ways. And then you know what else is in some ways a story stock and swings wildly based on one news headline every day? Bitcoin and cryptocurrency.

MYLES UDLAND: I mean, I want all stocks to be story stocks. It's much easier for our job here in the media than to talk about, you know, so and so analyst raises their price target on tweaking the model. That's not fun. It's more fun when everything is a story.