The dynamic of US sports gambling is rapidly shifting, as the industry continues to garner attention from notable investors. The crescendo in the gaming domain is reaching a fever pitch, thanks to players like Churchill Downs and Penn Entertainment – two firms earning high praise in the recent Mizuho coverage.
Mizuho analyst, Ben Chaiken, is particularly keen on a wide array of gaming entities, with Churchill Downs and Penn Entertainment topping the chart. The spotlight, according to Chaiken, is attributable to the burgeoning US sports betting industry—a sector in which Penn Entertainment is progressively helming. The expert’s crisp analysis has led to assigning a ‘buy’ rating to the Penn stocks, predicting a significant high of 70% jump from its March 25 closing price. This prediction soars on the breadth and depth of the customer base commanded by ESPN and the operator’s seamless integration with ESPN Bet.
Furthermore, Chaiken argues Penn’s regional land-based casino endeavors are significantly undervalued. Currently, he observes, there is a limited or nil value assigned to Penn’s online sports betting vertical by the investor fraternity, making it an overlooked gem. Boasting ESPN Bet as a ‘call option,’ Chaiken carries the caveat that Penn might face an uphill struggle in states with long-established competitors. However, any wins in the new markets are expected to reinforce Penn’s market share.
Churchill Downs also received a pat on the back from Chaiken, marked as yet another bright spot in the arena with a ‘buy’ rating and a $142 price target. This target signifies a laudable 20.6% upside from its March 25 close. Capitalizing on the robust earning trend of the Kentucky-based gaming company, Chaiken predicted a further rise in the company’s sturdy free cash flow due to an upward trend in its earnings before interest, taxes, depreciation, and amortization (EBITDA). He highlighted a treasure trove of projects that remain unaccounted for in the company’s current share price, which includes casinos in Indiana and Virginia and enhancements to its iconic racetrack in Kentucky.
Chaiken anticipates that the emerging regulatory measures aiming to criminalize certain gray market wagering forms in Kentucky and Virginia could also aid Churchill Downs. The firm is well-positioned to navigate these changes, being one of the largest regulated operators in these jurisdictions.
The Mizuho expert also expressed optimism regarding several other regional casino operators, like Boyd Gaming and Red Rock Resorts, endorsing both with a ‘buy’ recommendation.
DraftKings too found favor with Chaiken, who initiated coverage on the online sportsbook giant, charting a ‘buy’ status and a $50 price estimate. With the operator commanding over 30% market share in North America, Chaiken envisions a potent 24.7% upside. Acknowledging DraftKings as the preeminent online sports betting and iGaming company in North America, he maintained that Wall Street slept on the massive operating leverage within the business model.
Chaiken concluded optimistically in favor of DraftKings, attributing its strong sales growth to the new addition of states permitting sports wagering. He added that the company is likely also to succeed in driving down marketing expenses.
