Jefferies analyst David Katz upgraded shares of Penn National Gaming (NASDAQ:PENN) to Buy from Hold with a $49.00 per share price target.
The basis for the upgrade call lies in the recent weakness, said Katz, with the current valuation comfortably reflecting “the stable cash generation of the land-based casino business (<10X FCF), while assigning de minimis value for the digital prospects.”
“At present levels, the shares are trading at 6.7X EBITDAR and 9.6X FCF on 2023 estimates, which suggests the market is either pricing in a recession or assigning no value to the company's digital and media assets. In either case, we believe the shares should trade at higher levels,” Katz said in a client note.
The analyst is also positive about the outlook for digital business, which is likely to yield returns in time.
“We believe any value creation from digital and media is incremental to current levels and could potentially drive upside. We include $14 per share for Barstool/SCR, which is based on 8% market shares, 30% margin and discounted at 14% from 2025. We also include media value on $200M of revenue discounted back from 2025. The result is incremental $17 per share to our $32 per share land-based value for a target of $49,” Katz concluded.
Penn stock price is up 1% today.
By Senad Karaahmetovic