Penn National Gaming shares have benefited from the "retail community turning the ticker into an internet meme of sorts," thereby creating momentum in the stock, Deutsche Bank analyst Carlo Santarelli tells investors in a research note.
A narrative "that largely abandons fundamental rationale" has been created, says the analyst. Santarelli, who admits he doesn't know when this will end, believes the total addressable market story around sports betting "will start to crack" as more and more data points around per capita spend come to the forefront. Further, the level of sports betting competition will become more evident and questions around margins will begin to appear, predicts Santarelli. The analyst believes the "fundamental and valuation support" under Penn National shares is "lacking," and that "when some or all of these things happen," the stock will see a "considerable contraction." To reflect margin strength in Q3 and favorable core operating revisions, the analyst raised the firm's price target on Penn National Gaming to $31 from $22.
Santarelli keeps a Sell rating on Penn with the stock closing Wednesday up $3.29 to $72.70.
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