Casinos & Hotels

Goldman Sachs Says Buy These 3 Top Gaming Stocks Now Before Earnings

DraftKings entered the market in April 2020 at a time when most companies were putting off their initial public offerings. The offering was not an IPO in the truest sense because DraftKings came public through a merger with a special purpose acquisition company called Diamond Eagle, but similar rules applied, a practice that has grown exponentially since then.

Last year, the company introduced 2021 revenue guidance of $750 million to $850 million, which equates to 45% year-over-year growth, using the midpoints. The Goldman Sachs research report said this:

We increased our first quarter 2021 estimate to factor in higher monthly unique players or MUPs in the quarter on the back of new state launches in Michigan and Virginia and sustained downloads. Though MUPs and app downloads have historically declined quarter to quarter from the fourth quarter to the first quarter app downloads increased between the first and fourth quarter We acknowledge a portion of those downloads represent users who may have downloaded the app ahead of new state launches, and therefore embed MUPs declining by about half the historical rate in our estimates. As such, we are 12%/11% above Consensus in the first quarter for MUPs/Revenue and await the results for additional insight into the relationship between MUPs and downloads.

The Goldman Sachs team raised the price target on the shares to $88 from $87. The lower Wall Street consensus target is $73.27. DraftKings stock closed Wednesday at $58.78, after rising almost 6% on the day. The company is expected to report on May 7.

Penn National Gaming

This is an analysts’ favorite for online gaming and shares have backed up nicely after a massive run earlier this year. 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.

The company 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.

Last year, Penn National bought a 36% stake in Barstool Sports valued at $450 million, along with options to increase its stake to 50% in the future. Barstool is a sports media empire that claims 66 million monthly active users, roughly 100 million social media followers and two of the top 30 podcasts in the country.

The analysts said this about Penn National:

We update our model for disclosures from regional markets. Our revenue/EBITDA estimates for first quarter of 2021 move 4.5%/5.3% higher following better-than-expected results in Michigan, Ohio, Indiana, Mississippi and Louisiana offset by slightly weaker results in the West and Midwest segment. We update our sum-of-the-parts to reflect our updated 2033 online sports betting total addressable market at $38.1 billion, and roll forward our Discounted cash flow/Sum-of-the-parts price targets by one quarter.

With a huge growth potential, and a big drop in the share price, this is an incredible play for aggressive growth investors.

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