This is a play on the technology side of the sports betting potential. Scientific Games Inc. (NASDAQ: SGMS) develops technology-based products and services and related content for the gaming, lottery, social and digital gaming industries in the United States and internationally.
Its Gaming segment sells new and used gaming machines, electronic table systems, video lottery terminals, conversion game kits and spare parts; slot, casino and table-management systems; table products, including shufflers; and perpetual licenses to proprietary table games. It also leases gaming machines; provides gaming operations and licensing arrangements; and installs and supports casino management systems, such as ongoing hardware and software maintenance and upgrade services of customer casino management systems.
Scientific Games digital segment provides digital gaming and sports wagering solutions and services, including digital RMG and sports wagering solutions, distribution platforms, content, products and services; software design, development, licensing, maintenance and support services; Open Platform Systems; and content aggregation platforms.
SunTrust is very bullish and said this in a recent research report:
Strong, underappreciated U.S. opportunity – We hosted virtual meetings with head of Digital, Jordan Levin and Investor Relations, Bobby Shore. We came away incrementally positive on the company’s sports betting/iGaming offerings and the long-term US opportunity (segment EBITDA could potentially grow 3-8x by 2024 estimated). We see strong competitive advantages, substantiated by several high profile new contract wins. Management has noticed recent pure-play peer stock performance, and will weigh potential to unlock value vs. cross-segment synergies. We raise our price target given market re-rating and our enthusiasm around the Digital opportunity.
The SunTrust lifted its price objective to $30 from $15. The consensus target is $15.11, and shares closed at $16.44 on Thursday.
Penn National Gaming
This is another analyst favorite for online gaming. Penn National Gaming Inc. (NASDAQ: PENN) owns and manages gaming and racing properties, and it operates video gaming terminals with a focus on slot machine entertainment. It also offers live sports betting at its properties in Indiana, Iowa, Mississippi, Nevada, Pennsylvania and West Virginia, and it operates an online casino under the name of iCasino in Pennsylvania.
As of March 16, 2020, the company owned, managed or had ownership interests in 41 gaming and racing properties in 19 jurisdictions. It owns various trademarks and service marks, including Ameristar, Argosy, Boomtown, Greektown, Hollywood Casino, Hollywood Gaming, Hollywood Poker, L’Auberge, M Resort and MYCHOICE.
BofA Securities analysts recently noted this:
Penn Gaming has seen strong initial results in iGaming in Pennsylvania (+91% YTD, and profitable) but will not really participate in sports betting until the launch of its Barstool Bets branded app. The opportunity for Barstool is converting a portion of its 66 million unique visitors into paying sports betting customers. We estimate if Penn National/Barstool is able to trend toward 10-15% market share on a $5 billion 2021 market at a ~6.0 times revenue multiple, the sports betting and iGaming opportunity alone could be valued at $20-25/share.
The $41 BofA Securities target price is well above the $26 consensus target. The stock closed most recently at $31.73 a share.
These are two newer companies and two older standbys that have branched out into the digital gambling world. Given that the field is somewhat narrow, it would be no surprise if there was consolidation and larger gambling entities scooped up some of the smaller players.