Sin stocks – mainly alcohol, tobacco and gambling – may have a bad reputation, but they are big business and can provide investors with solid returns. And, in a major news story that happened last week, New York State officially legalized online sports betting. The game review was included in the state's regular budget proposal, as the legislature saw legalized sports betting as a means of increasing tax revenue. Governor Cuomo signed the bill.
Included in New York's schedule to bring online sports betting into play are provisions for platform providers to bid on acquiring the two available legal applications. The selected providers each pay a one-time fee of $ 25 million to the state and their activities are subject to a minimum tax rate of 13%. The terms of the bill will allow bets on both professional and college sports, as long as no New York college is involved in the actual sporting event.
New York law is an important step in a general trend towards more legalized gambling in the US. More than two dozen states now have legal sports betting – although many states require personal bets to be placed. Moving the service online, as New York is doing, is the next step and has been taken by 14 states.
This trend has made online betting providers a natural target for investors interested in legal gambling and the companies that offer it. Using the Investing Insights platform, we tracked down three such stocks for which some Street analysts predict strong growth in the next 12 months. Importantly, these stocks also score a smart score of "Perfect 10".
The platform gives each stock a one-digit score, based on the sum of 6 separate factors. The factors used are known to correlate with future overperformance; when they line up, this is a strong indication for buyers to take into account. Let's take a closer look.
Penn National Gaming ( PENN )
The first game stock we are looking at, Penn National (NASDAQ :), got its start in the horse racing industry in the 1960s and has since grown into a major gambling operator in 19 states, controlling 41 gaming and racing properties. Penn also owns slot machine video gaming terminals and offers live sports betting in Colorado, Illinois, Indiana, Iowa, Michigan, Mississippi, Pennsylvania and West Virginia. Penn has a 36% ownership stake in Barstool Sports and uses that company's media to leverage its own interactive gambling products. Penn & # 39; s network, which includes 48,000 slot machines, 1,300 table games and 8,800 hotel rooms, leverages a casino audience of 20 million customers, along with Barstool & # 39; s online audience of 66 million customers.
So Penn has a large scale. That helped the company weather the pandemic storm in 2020, even though COVID-related closures had a heavy impact on sales and profits. For 4Q20, the company reported more than $ 1.03 billion at the top, down 23% year-over-year, along with earnings per share of 7 cents per share. While earnings fell, earnings per share compares well with last year's 80 cents loss. Subsequently, the stock has risen ~ 400% over the past 12 months.
Penn is working to expand its online presence and in February of this year partnered with Capital Region Gaming, a 20-year agreement that now gives Penn access to the online casino and sports betting market. in New York City. The move was speculative on Penn's part, but is now justified by the new legislation cited above.
In addition to entering the New York market, Penn launched the Barstool Sportsbook mobile app in Illinois in March. The app will be available to both Android and iOS users, through smart devices and desktop computers. Also in March, Penn received the first regulatory approval, a temporary permit from the Virginia Lottery, to make the Barstool app available in that state.
Regarding Penn for Rosenblatt Securities, five-star analyst Bernie McTernan writes, “Like our view in the industry, PENN is optimistic about the potential for supporting legislation this year and notes that a 40% market access target is reasonable for YE & # 39; 21, although there is still a great deal of uncertainty. Given their regional footprint and relative market share in OSB, PENN is confident they will gain access to all new markets. For states with existing laws, their regional footprint and the popularity of bar stool in the state will determine timing; we expect PENN to target launches in IL, IN, NJ and CO with launches in all states with existing laws against NFL season. "
McTernan's comments support his Buy rating on PENN, along with his $ 140 price target, which suggests a 62% rise for the coming year.
Overall, PENN has caught the attention of Wall Street analysts, who recently set 9 Buy ratings for the stock. These are partially offset by 1 Hold and 1 Sell, leading the analysts to rate the consensus of a Moderate Buy. The stock has an average price target of $ 125.27, which is a ~ 40% increase from the current trading price of $ 92.85. (See PENN Stock Analysis)
DraftKings, Inc. ( DKNG )
Next up is DraftKings Inc (NASDAQ :), a major player in the world of sports betting and online fantasy sports leagues. The company has an online model that came in handy during the corona crisis, and DraftKings' stock is up 208% in the past 12 months.
DraftKings was the first legal mobile sports betting team in New Jersey, starting there in 2018, and has since expanded its geographic reach and game offerings. The company allows app users to place bets on sports games, indulge in fantasy leagues and play more traditional online casino games.
In its most recent quarterly report, for 4Q20, DraftKings showed an important data point that provides a solid reason for success: the company reported 1.5 million monthly unique players in Q4, compared to just over 1 million in Q3. Average revenue per monthly unique player was $ 65, and total quarterly revenue was $ 322 million. That total was 38% higher than expected. Rising user numbers and revenues are pushing the company to increase its revenue forecast for 2021, from the $ 750 million to $ 850 million range to $ 900 million to $ 1 billion, or an 18% increase in the middle.
In mid-April, DraftKings became an Official Sports Betting Partner of the National Football League and the Official Daily Fantasy Partner of the NFL. The partnership confirms DraftKings' position as a leader in online fantasy sports leagues and gives DraftKings the right to integrate its sports betting content directly into official NFL media.
According to Oppenheimer analyst Jed Kelly, "DKNG can enhance its fan experience with NFL highlights, footage and new Gen Stats."
Kelly sets out a clearly optimistic argument for DKNG, noting, “The company is delivering strong engagement (87% / 108% retention of customers / revenues in Year 2) and we are seeing the SBTech migration (DraftKings will switch on using SBTech for its platform in September) with enhanced product capabilities, such as parlays in the same game, closing the competitive gap with other major operators In addition, DKNG & # 39; s updated state-level economic outlook implies ~ 800 bps of gross margin efficiency at the internal migration of technology platforms and other efficiencies at scale. "
To this end, Kelly rates DraftKings stock with an Outperform (i.e., Buy), and his $ 80 price target implies a 34% rise for one year.
Overall, DraftKings receives an average buy rating from the analyst consensus, based on 20 reviews, including 14 purchases and 6 holdings. The shares are selling for $ 59.69 and their average price target of $ 74.16 suggests ~ 24% upside potential in the next 12 months. (See DKNG Stock Analysis)
fuboTV ( FUBO )
fuboTV (NYSE 🙂 started as a football streaming service in 2015 – but has since expanded and is now a sports-focused online streaming TV provider, providing the public with access to all broadcasts of the major US leagues: NFL , MLB, NBA, NHL and MLS. The service also streams international football along with news and network programming.
Online streaming is a fast growing sector and fuboTV ended 2020 with strong statistics. The company had 548,000 paid subscribers as of December 31, who had streamed a total of 545 million programming hours during the year. Sales for the year totaled $ 269 million, and in the fourth quarter, the company added more than 92,000 subscribers and exceeded $ 105 million in quarterly sales.
In early March, fuboTV announced that it had closed deals in three states to launch its fubo Sportsbook, an online sports betting service. The company has access in Iowa through Casino Queen and now has access to the New Jersey and Indiana market through an agreement with Caesars Entertainment. fuboTV expects to launch the Sportsbook service in 4Q21, pending regulatory approval.
Barrington analyst James Goss has researched FUBO thoroughly and sees many reasons for optimism in the company's prospects.
"Sports betting is an area of ??focus for management in developing a sportsbook to drive engagement and retention, while at the same time creating the opportunity for additional revenue," wrote Goss.
The analyst added, “The development of profitability and cash flow goals will take time, with progress towards achieving internal goals partially reflecting the balance management is trying to find between growth and investment. The move to sports gambling is arguably the greatest wild card in this regard, while potentially yielding the greatest incremental returns. "
Goss rates FUBO as Outperforming (i.e. buying), while setting a target of $ 40 on the stock. The figure implies ~ 84% upside potential for 2021.
How does Goss's bullish bet weigh against the Street? Overall, Wall Street likes FUBO, a fact that is evident from the 7 registered analyst reviews. 6 of them are Buys, against just 1 Hold. The stock's trading price is $ 21.78, and its average price target of $ 45.43 is even more optimistic than Goss's; it suggests room for ~ 120% growth this year. (See FUBO Stock Analysis)
For more ideas for stocks trading at attractive valuations, visit Investing Insights .
