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Is PENN Entertainment, Inc. (NASDAQ:PENN) the Best Las Vegas Stock to Buy Right Now?

VaselineSeptember 16, 2024

0 7 minutes read

Is PENN Entertainment, Inc. (NASDAQ:PENN) the Best Las Vegas Stock to Buy Right Now?

We recently compiled a list of the 11 Best Las Vegas Stocks to Buy NowIn this article, we’ll take a look at where PENN Entertainment, Inc. (NASDAQ:PENN) ranks among the best Las Vegas stocks to buy right now.

The gambling industry is growing globally, with the United States being one of the fastest growing markets. According to the American Gaming Association, more American adults have participated in some form of gambling entertainment than ever before in the past 12 months. The study found that more than 55% of American adults participated in gambling, with 28% going to a land-based casino and 21% placing sports bets.

One of the key findings of the report was that gambling was becoming increasingly acceptable within the American population. According to the association, 9 out of 10 adults found casino gambling acceptable for themselves and others. This is good news for the American economy and casino companies, as they stand to generate significant revenue from the increased acceptance of gambling. Commercial gaming revenue in the United States grew 8.9% year-over-year to $17.63 billion during the quarter. Q2 2024 marked the 14th consecutive quarter of growth and was driven by the expansion of casinos in several states in the country, including Illinois, Virginia and Nebraska.

Sports betting is one of the biggest contributors to the overall gambling industry. Let’s take a look at some recent trends in the sports betting industry.

What’s Happening in the Sports Betting Industry?

It’s hard to think of sports without sports betting or gambling. The sports betting and gambling industry in the United States has exploded over the past 6 years since it was legalized in most states in the United States. Currently, 38 states have legalized gambling and the industry is expected to generate over $120 billion in total wagers and $11 billion in revenue for 2023 alone.

In one of the recent episodes of CNBC Boardroom’s Game Plan Sports Event, executives from FanDuel, Fanatics and Sportradar discussed new state taxes and trends in the gambling industry. All the panelists concluded that bettors are more interested in placing bets on individual players, in addition to placing real-time bets during the live sporting event.

Additionally, FanDuel’s CEO reversed his decision to impose a gaming supertax on his customers after his competitors decided not to impose any such tax. This came in response after two US lawmakers introduced a bill to crack down on sports betting at the federal level. In one of our recent articles on 10 Best Casino Stocks to Buy According to Analystswe discussed how the upcoming taxes are expected to impact the market. Here is an excerpt from the piece:

Illinois lawmakers are drafting a new budget that includes a steep increase in the state’s sales tax on sports betting operators. On May 28, CNBC reporter Contessa Brewer reported that Illinois operators have paid a 15% increase in sports betting since it went into effect in June 2021. The new tax proposal is expected to raise the tax to a range of 20% to 40%, depending on gross revenue, meaning the largest bookmakers are expected to be hit the hardest by the hike.

The bill has yet to be passed, but if approved, Illinois’ top tax rate would be the second-highest, behind New York and New Hampshire. For reference, Illinois is the fourth-largest state for sports betting, with gamblers having wagered more than $1.2 billion in March 2024 alone. Sports betting associations are not happy with the tax proposal. The CEO of one of the largest sports betting operators in the United States indicated that the burden of the tax would shift to consumers.

There are tailwinds ahead that are expected to further boost the industry. Football season is back, and the NFL is expected to generate a record $35 billion in legal sports betting revenue. On September 3, CNBC reported that the United States will spend $35 billion on this NFL season, a 30 percent increase from last year’s National Football League.

Much has changed since last season. Throughout the year, states such as Maine, North Carolina, and Vermont have allowed sports betting in their jurisdictions. Amid the upcoming season, sports betting companies are feeling the heat of competition and platforms are coming up with new strategies to attract more customers.

FanDuel’s president noted that the NFL season is one of the biggest acquisition periods of the year. The platform has partnered with YouTube and rolled out a “Sunday Ticket” offer, where players who wager a minimum of $5 get a 3-week trial to watch NFL games with Sunday Ticket. Additionally, with over 95% of sports betting taking place online, it presents an exciting opportunity for sports betting leaders to grow their customer base and generate more revenue.

Our methodology

To compile the list of 11 best Las Vegas stocks to buy right now, we used the Finviz screener and ETFs. Using these two sources, we first compiled a list of 20 casino, gambling, and gaming stocks. Once we had the list, we ranked these stocks based on the number of hedge fund holders in the second quarter. The list is ranked in ascending order of the number of hedge funds.

Why do we care what hedge funds do? The reason is simple: our research has shown that we can beat the market by mimicking the best stock picks of the best hedge funds. Our quarterly newsletter strategy selects 14 small- and large-cap stocks each quarter and has delivered a 275% return since May 2014, outperforming its benchmark by 150 percentage points (see more details here).

A casino floor with multiple gaming tables and slot machines, illuminated by neon lights.

PENN Entertainment, Inc. (NASDAQ:PENN)

Number of hedge fund holders: 30

PENN Entertainment, Inc. (NASDAQ:PENN) is a sports betting and casino gaming company with operations in 20 states and more than 43 properties. The Company holds online sports betting licenses in 18 jurisdictions and iCasino operations in 5 jurisdictions. The Company operates through a portfolio of renowned brands, including L’Auberge, theScore Bet Sportsbook and Casino, Hollywood Casino and ESPN BET.

PENN Entertainment, Inc. (NASDAQ:PENN)’s operations are segmented based on the geographic locations it serves and include the Northeast, West, South and Midwest segments. The company also has an online presence under its Interactive segment.

The overall market landscape of the casino and gambling industry has been challenging with a lot of competition. However, PENN Entertainment, Inc. (NASDAQ:PENN) has an advantage in the market due to its extensive mix of services. The company already owns a number of land-based casinos and is now investing in mobile gaming, sportsbooks and iGaming.

The digital database within the interactive segment has improved by more than 81% since ESPN BET launched in late 2023. In addition, the company has also significantly grown its monthly active users, by more than 138% year-over-year.

On the other hand, the Brick and Mortar Casinos business has continued to be a successful venture for the company. Hollywood Casino’s revenues subsequently grew by 6.5% and its market share grew by over 89 bps year-over-year. The Hollywood property is not the only contender when it comes to market share growth. The Ohio property also improved its market share by 114 bps during the same period.

Despite an overall sluggish market environment, PENN Entertainment, Inc. (NASDAQ:PENN) has emerged as a strong player in the industry. Looking ahead, its growth is expected to continue at an accelerated pace as it is set to launch ESPN Bet in New York as well. New York accounts for approximately 6% of the total U.S. population and is expected to add over 10 million monthly active users to its digital database.

Hedge funds have also shown interest in PENN, which was held by 30 hedge funds as of Q2 2024, with total holdings of $663.69 million. HG Vora Capital Management is the company’s largest shareholder, with a position worth $280.6 million.

Greenlight Capital stated the following about PENN Entertainment, Inc. (NASDAQ:PENN) in its first quarter 2024 investor letter:

“We have taken a new medium-sized position PENN Entertainment, Inc. (NASDAQ:PENN) at an average price of $22.69 per share, but for reasons discussed below, the shares fell to $18.21 by the end of the quarter. As noted above, we have a mid-sized position in PENN, a regional casino operator. PENN’s current enterprise value is just over $4.3 billion, and based on an 8-12x multiple of free cash flow, we value its land-based casinos between $4.3 billion and $7 billion. PENN also competes in online gaming, particularly sports betting, and we believe the market attributes substantial negative value to that endeavor. To be fair, the online segment has a mixed history. In 2020, PENN acquired a minority stake in Barstool Sports, and three years later agreed to buy the remainder, for a total of $551 million. That acquisition was a complete failure, and the company eventually decided to abandon the investment. It also spent $2 billion in 2021 acquiring Score Media and Gaming to build a better online sports betting platform. Last year, it struck a deal with ESPN to launch and operate ESPN BET.

Successful sports betting franchises can command significant value. DraftKings is the leader, valued at over $20 billion. Through ESPN BET, PENN is aiming for top-three status in the industry. Given that the market is assigning negative value to ESPN BET, it’s fair to say that investors have serious doubts about the company’s strategy and management’s ability to execute after the Barstool debacle. If the market were to assign PENN just 15% of DraftKings’ value, that segment alone would be worth $20 per share.

PENN launched ESPN BET last November. The launch was largely successful, resulting in them achieving top three user share by adding one million customers in less than two months. This result was much better than expected and allowed PENN to turn a profit a year ahead of previous guidance. To achieve this, the company spent more on upfront marketing to acquire customers than it had indicated. While we thought the rationale for the increased spend was well understood, the market focused on the increased spend and punished the stock.”

General PENN is in 11th place on our list of the best Las Vegas stocks to buy now. While we recognize PENN’s potential as an investment, our conviction is based on the belief that AI stocks hold greater promise for delivering higher returns and in a shorter time frame. If you’re looking for a promising AI stock trading at less than 5x earnings, check out our report on the cheapest AI stocks.

READ ALSO: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy, According to Morgan Stanley And Jim Cramer says NVIDIA ‘has become a wasteland’.

Disclosure. None. This article was originally published on Insider Monkey.

VaselineSeptember 16, 2024

0 7 minutes read