Casinos & Hotels
E-Sports and Digital Gambling Is Surging: 4 Top Stocks to Buy Now
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Everything changed on January 9, 2007, when the legendary co-founder of technology behemoth Apple, Steve Jobs, announced the first iPhone at the Macworld convention. Just 13 short years ago, basically everything you needed with all the information known to man became available in a device that was called a smartphone. Since then, every conceivable avenue for the smartphone to be used has opened up.
One area benefiting from the growth and sophistication of technology is gambling, especially sports betting online. Some companies offer every possible wager on sports, with proposition betting on every part of every contest. You can even bet on the coin toss in football games. In addition, the younger crowd is being drawn into e-sports, with gambling on gaming for the 18+ demographic. There is a massive fan base for fantasy football as well.
The floodgates for those tired of using the bookie down the street were opened in 2018 when the Supreme Court ruled states could legalize sports betting, striking down a 1992 federal law that had prohibited most states from authorizing sports betting. The 6 to 3 ruling was a victory for states that had long considered allowing sports gambling as a way to encourage tourism and tax revenue.
We searched 24/7 Wall St. research databases for companies that are exploiting the new laws and the new technologies, and we found four that look attractive for aggressive accounts seeking ideas that could have a wide-open future.
DraftKings
The company became a huge favorite with younger people due to the surge in popularity of fantasy football. DraftKings Inc. (NASDAQ: DKNG) operates as a digital sports entertainment and gaming company. It provides users with daily sports, sports betting and iGaming opportunities. It also is involved in the design and development of sports betting and casino gaming platform software for online and retail sportsbook and casino gaming products.
The company entered the market back in April in 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.
The stock has since surged and the company is having a secondary offering this week. That offering consists of 33 million shares, with 14 million coming from DraftKings and 19 million being offered by certain selling stockholders. Additionally, the underwriters have the option to purchase up to an additional 4.95 million shares.
Canaccord Genuity is one of many firms with a Buy rating. It also has a $50 price target, above the Wall Street consensus target of $43.88. DraftKings stock closed on Thursday at $40.84 a share.
Esports Entertainment
This company is focused on the e-sports gaming craze and targets the younger, 18+ demographic. Esports Entertainment Group Inc. (NASDAQ: GMBL) operates as an online gambling company in Canada. It offers bet exchange style wagering, player versus player betting and betting on professional e-sports events. It also operates Vie, an online e-sports wagering website. The company was formerly known as VGambling and changed its name in May 2017.
The company signed a binding Letter of Intent in May to acquire LHE Enterprises, the holding company of online sportsbook and casino operator Argyll Entertainment and its operating support subsidiaries.
Since launching its flagship brand, Sportnation, in the summer of 2017, Argyll has established itself as a fast-growing and innovative gaming company within the U.K. and Irish market, leveraging the expertise of its 40 strong staff in marketing, technology, risk management and regulation to offer its customers an entertaining, safe and secure online gaming experience, an award-winning rewards program and access to exclusive and proprietary sports and gaming content.
There were no Buy ratings on the company so far, but there is a good chance there will be coverage soon. The last trade hit the tape Thursday at $7.02, up over 6% on the day.
24/7 Wall St.Scientific Games
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.
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