Previously on the brink with rampant speculation about its ability to survive in a zero revenue environment, Penn National Gaming PENN is easily one of this year's best redemption stories, returning more than 1,700% from its March lows.
What was once a sub-$4 dollar stock now resides over $70 and if an investor thinks the $80 price target from Rosenblatt Securities on Penn is audacious, try the $85 forecast from Stifel on for size. With sports betting and internet casinos taking off, Penn at $85 over the near-term isn't a far-flung prospect.
“After making a handful of positive changes to our assumptions, we are raising our target price to $85,” said Stifel analyst Steven Wieczynski. “While some would argue PENN shares could be overvalued, we believe they can continue to work, especially into November, as we expect a number of states to pass gaming legislation that should keep the sports betting/iGaming momentum rolling.”
Investors looking to play the gaming stock via exchange-traded funds need to be choosy. Here are a few to consider.
Invesco S&P Spin-Off ETF (CSD)
A surprise fund to lead this list, the Invesco S&P Spin-Off ETF CSD has the largest weight to Penn stock at almost 9%. CSD, which is almost 14 years old, holds spin-offs that occurred over the last four years.
Penn is the only gaming equity featured in CSD's lineup, but the ETF is an admirable idea for investors looking to place wagers on a rebounding economy as more than three-quarters of the fund's roster is allocated to cyclical or economically sensitive sectors.
Roundhill Sports Betting & iGaming ETF (BETZ)
One of the great success stories among this year's crop of new ETFs, the Roundhill Sports Betting & iGaming ETF BETZ now has almost $130 million in assets under management after launching in June. Penn National is the fourth-largest holding in BETZ at 5.75% of the fund's weight. That's relevant because....
“The question regarding PENN that we get from investors all the time is, ‘Can the momentum trade continue?’” writes Wieczynski. “In our view, the simple answer is yes. At this point, we believe investors have attributed $25-$35 of equity value per share to PENN’s Barstool acquisition and the long-term opportunity it could present.”
Undoubtedly, BETZ is the ETF most levered to the theme of sports betting expansion, which will happen over the next several months as marquee states, such as Louisiana, Massachusetts and Ohio, among others, potentially join the fray.
Invesco S&P MidCap 400 Pure Value ETF (RFV)
The Invesco S&P MidCap 400® Pure Value ETF RFV has an almost 4% weight to Penn National, putting the ETF third behind CSD and BETZ in terms of exposure to the gaming company. RFV allocates over 28% of its weight to consumer cyclical names, but Penn is the only casino operator in the portfolio. The quibble here is how much of a value stock Penn is with trading at 60.24 times forward earnings.
Disclosure: The author owns shares of Penn National.
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