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How Barstool’s deal with Penn National could boost the gaming company’s stock price

On Thursday, Goldman Sachs initiated coverage of Penn National Gaming with a buy rating and $60 price target, implying a 20% upside from current levels, as it sees the gaming company “at the cross-section of a rapidly rebounding regional casino space and inflecting growth in sports betting.” Of Penn’s partnership with Barstool Sports, Goldman thinks Barstool’s “embedded customer base and content creation engine will drive one of the lowest customer acquisition costs in the industry,” which will pay off for Penn.

Video Transcript

[MUSIC PLAYING]

MYLES UDLAND: All right, it's time now for our Call of the Day. And today, we are talking about Goldman Sachs' initiation of research coverage on shares of Penn National Gaming. They got a buy rating and a $60 price target on the Barstool parent company. Big day for the Davey Day Trader Global, right? That's what it is, DDTG. I think, Seana, I have that right.

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And the whole Barstool gang, now, I think it's interesting in this note that Goldman sees Barstool as essentially a customer acquisition channel for Penn and a cheap one at that, relative. And I know Dan Roberts has written about the ad spend that we've seen ramp back up from Draft Kings, from FanDuel. Well, if you're Penn National, you just let the Barstool crew, I guess, do whatever they do, write posts, have podcasts.

And it all feeds into this funnel of more people using Penn National's online sports book, which, as we kind of get sports going again, we've seen heavy betting across, kind of, all the sports that have started up.

SEANA SMITH: Yeah, Myles, I mean, well, Penn National Gaming's CEO has said in the past a couple of times how Dave Portnoy is just this marketing genius. So it obviously makes sense that, because of their massive following, that they have the company probably won't have to spend as much on advertising as some of its competitors does, as FanDuel or Draft Kings has to here in the future.

And then also just talking about their massive following. This is something that Goldman Sachs actually pointed out in their note, and they had a graph on this. They were talking about the number of Instagram and Twitter followers and also Facebook likes, they even threw that in there, that Barstool has compared to FanDuel, compared to Draft Kings, and really by how much it really dwarfs some of their competitors out there. So just the, I guess, the importance here and the power of Barstool, that's really at the crux of this note from Goldman and what separates Penn National Gaming from its other competitors out there.

And there was also a couple other strong numbers in this report as well, Goldman saying that it expects regional casinos to benefit from people not being able to travel or spend their money elsewhere on leisure activities because of COVID. And they think that that's going to amount to $230 billion. So some decent year projections here, at least in the short term, from Goldman that they think Penn National Gaming is going to be able to capitalize on.

And remember real quick that this is a stock that has already doubled from the beginning of the year. If you take a look at where it was trading on January 1, right around $25, $26 a share, now above 50. And Goldman thinks it can rally another 20%. So talk about just the power of the partnership, especially when it comes to Barstool's fan following that we all have talked about so much here at Yahoo Finance. But definitely looks like a smart move here from Penn National Gaming at least.

DAN ROBERTS: It's interesting, guys, you know, if the thinking was that Pen Gaming has upside amid the return of sorts, which is also in here a little bit, and that's the case for all betting stocks, that's one thing. And also, if the thinking was that as Barstool grows, that's good for Penn Gaming as the majority owner, then that's another thing. And that's true too.

I mean, it's the majority owner, so, you know, anything that's good for Barstool, hypothetically good for Penn Gaming. But I did find it interesting that the crux of the argument being, as Myles and as you, Seana, both alluded to, the idea that Barstool readers and Barstool, kind of, fanatics and, you know, Stoolies, as they're called. Fans of the site, readers of the site, viewers of the content will automatically become Penn Gaming customers.

And there's a really interesting line in here, the idea that it's going to be one of the lowest customer acquisition costs in the sports betting industry, allowing Penn to quickly take share from Barstool Sports' embedded customer base. That is the assumption that a Barstool fan would automatically become a gaming betting customer of Penn, that's where I took a little bit of issue. Because I wouldn't necessarily assume that.

Now, as you guys mentioned, Portnoy, the founder and president of Barstool, has really pivoted to being a, you know, a stock guy during this time and has grown his own personal brand. I know Myles is interested in that sort of transition and taking advantage of the moment. And, you know, a lot of those personalities of Barstool talk about betting, and they love to talk about the over-under, and they love to talk about their, you know, bad losses.

But I wouldn't just-- I just wouldn't necessarily assume that most or that a high number of Stoolies will automatically become sports betters.

MELODY HAHM: Oh, that's interesting, Dan. I think that's actually very likely because we're talking about a prototype, right? There are so many Portnoy wannabes. There-- they stand Portnoy no matter what he does. It's almost like this Muskian thing where he has developed this cult of personality, and to Seana's earlier point of, you know, the sea of Penn Gaming calling him the mastermind marketer. And he has done some egregious stuff over the last several years.

And especially during these race conversations, I'm just so fascinated that even though there's, like, bits of cancellation, it's not actually tearing him down, right? And we just saw that they hired Deion Sanders, leaving the NFL Network. I think Portnoy said in an interview earlier today with TMZ that he wants Charles Barkley to be another correspondent with Barstool.

I feel like their profile is rising enough where there's so many people. To be perfectly honest, I would-- I'm not a Stoolie, right? But I'm obsessed with the pizza reviews. I can't stop watching them sometimes. So when you think about the entry point, and to that point of the lower cap, I feel like I can't think of an alternative, right, to get somebody who normally would not be interested in sports betting, not be interested in that world at all.

Portnoy has really spread himself out in many different directions to get people where they are, even if you're not interested in sports content whatsoever.

MYLES UDLAND: And of course, Dan Roberts will love that today, it appears the day Portnoy was hanging out with the Winklevi-- both of them-- hanging out together and spending some time discussing the Bitcoin world. But to that point, Melody, I think what we also should think about too is who the profile of, like, the target daily fantasy sports better is.

And I think, as someone who's dabbled in it, I think that the experience on FanDuel and Draft Kings is mostly like, I'm just being had. I know it's all sharks. It's professionalized. And you wonder if Barstool can stay true to a more, let's call it a retail customer, someone who just wants to bet a dollar here, dollar there. And it doesn't take a lot for that person who has 50, 75, even 100 bucks in an account of Draft Kings to just move it over to Barstool.

It's not a huge commitment. The sharks are going to stay, entering thousands of pools on Draft Kings. We all know, who was the guy, James Holzhauer, right, the guy from "Jeopardy." Like, there are those people out there who actually make the money. And I do wonder if this, sort of, retail bent, and you see it with stocks, we see it now with the [INAUDIBLE] the Bitcoin, this every man thing.

I feel like that also has to be part of the brand. And it seems like it'll be easy for them to pour over a lot of that enthusiasm into the app when it does, in fact, get itself fired up. Of course, regulatory risks, as always, go in flagging some of these. But again, buy rating $60 price target Penn shares, so they were up as much as 8% earlier today. Right now, up 8.5%, 53.90 per share with 35 minutes ago in today's [AUDIO OUT].