PENN Entertainment Inc (NASDAQ:PENN) has lagged the S&P 500 in the past year, but one analyst said Monday that investors looking to buy the dip have better opportunities elsewhere.

The Analyst: JMP analyst Jordan Bender downgraded PENN from Outperform to Market Perform and reiterated his $45 price target.

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The Thesis: In the downgrade note, Bender said PENN shares are fairly valued given its recent market share losses.

"While we acknowledge the underperformance in the last year vs. the SP500, we find more attractive risk-reward in other areas of the gaming sector with growth projects, online exposure and capital return programs," Bender said.

Bender noted the gaming sector is currently trading at a valuation discount to its historical levels, but gambling stocks will continue to deal with a difficult macroeconomic environment.

His top stock picks in the gaming space are MGM Resorts International (NYSE:MGM) and Churchill Downs, Inc. (NASDAQ:CHDN). Bender said both stocks are attractively valued and provide investors with diversified growth opportunities.

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Bender said 2023 is off to a strong start for the gaming industry. Land-based gaming revenue was up 5% year-over-year in the first quarter, and margins were consistent with the second half of 2022. However, Bender said year-over-year comparisons will start to get difficult for gaming companies in the next two quarters.

Looking ahead, Bender said U.S. sports betting and iGaming will be the best growth opportunities in the gaming market. He projects 20% annual growth in sports betting and 19% annual growth in iGaming over the next five years and said MGM is the market share leader in U.S. iGaming.

Benzinga's Take: MGM is a diversified play on gaming, with exposure to Las Vegas, Macau, iGaming and sports betting. In the past year, MGM shares are up 6.2% overall, while PENN shares are down 22.8%.

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