BofA Sizes Up Market For DraftKings, Penn National

The only negative for DraftKings Inc. DKNG is its high valuation, while the valuation of Penn National Gaming PENN is trailing sports betting rivals, according to BofA Securities.

The Analyst: Shaun Kelley reiterated a Buy rating on Penn National Gaming and raised the price target from $50 to $59.75.

Kelley initiated coverage of DraftKings with a Neutral rating and $40 price target.

The Penn National Takeaways: The launch of the Barstool Sportsbook app in Pennsylvania this week should serve as a potential catalyst for Penn National, Kelley said in a Tuesday note. 

After the launch, the analyst said he will be focusing on the app interface, customer reception, download metrics and market share data for the Barstool app.

Penn National has a lower valuation than rivals DraftKings and GAN Limited GAN, he said.

Penn shares trade at 5.6x enterprise value/revenue, lower than DraftKings' multiple of 15.7 and Gan’s 10.9x.

Penn’s 2020 stock gain of 112% trails DraftKings' 246% and Gan’s 122%, Kelley said. 

The DraftKings Takeaways: “Valuation is the only thorn in this King’s crown,” Kelley said of DraftKings' strong performance. Shares are up 246% in 2020.

DraftKings has a built-in market from its daily fantasy business, which has 9 million users across 43 states, the analyst said.

The online sports and iGaming businesses have a strong presence in nine states, he said. 

Benzinga’s Takeaway: Kelley is forecasting a $24-billion market for sports betting and iGaming by 2030.

Morgan Stanley recently downgraded both DraftKings and Penn National and said expectations for the sports betting and iGaming markets could be high.

The combined market size is likely to reach only $12 billion by 2025, compared to average estimates of $20 billion, according to Morgan Stanley. 

Barstool CEO and founder Dave Portnoy recently said the Barstool brand is similar to a sports team with its loyal fans and followers. The Penn National brand has over 100 million followers on social media.

DKNG, PENN Price Action: DraftKings shares were trading 0.59% higher at $37.22 ahead of the close Tuesday. Penn National shares were up 2.42% at $55.46.