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3 Stocks That Will Benefit From the Return of Sports

Nike, Inc (NKE), Penn National Gaming, Inc. (PENN), and DraftKings, Inc. (DKNG) are poised to benefit from the return of sports.

As the coronavirus spread across the United States, sports leagues eventually had to shut down. The first was the NBA, which suspended its season on March 11th after Utah Jazz Player Rudy Gobert tested positive for the virus. The following day, Major League Baseball (MLB) announced that spring training games were cancelled and the National Hockey League (NHL) announced it would pause the season.

Professional sports are a significant revenue driver. The National Football League (NFL) brings in $13 billion a year. The MLB comes in second with $9.5 billion, followed by the NBA ($5.2 billion), and the NHL ($4.7 billion). That is a lot of lost revenue, not just for the players and owners, but for workers at the stadiums and TV stations and media companies.

As some states are reopening with restrictions, the sports leagues are looking to follow suit. The NBA is looking to finish the season in isolation, the MLB is ready to start a shortened season, and the NFL plans to play its season with precautions. This should provide revenue opportunities for companies in the  sports industry. 

Here are three stocks that should benefit from the return of sports:

Nike, Inc (NKE)

As one of the most popular brands in athletic and recreational products, NKE has managed to survive the economic implications of COVID-19 pandemic through its extensive digital marketing strategies. The company managed to compensate for its loss in sales due to closed physical outlets by increasing digital sales by 75%, thereby generating 30% of the total revenue in the fiscal fourth quarter ended May 31st.  NKE’s losses for the quarter amounted to $790 million, reflecting the effect of the worldwide shutdown.

With 90% NKE-owned stores now being opened across the globe and 100% stores being open in China, the company is slowly regaining its previous sales turnover. While explaining the vision for 2021, NKE CEO John Donahoe stated, “Amid macroeconomic uncertainty, we will continue to operate with agility, focused on optimizing marketplace supply and demand, cost management and leveraging our financial strength to drive long-term sustainable, profitable growth.” NKE’s primary recovery strategy is to penetrate the women’s apparel market, which currently accounts for just 10% of the total sales.

NKE has gained more than 60% since hitting its 52-week low in mid-March. With an expected annualized earnings growth of 23.6% for the next five years and a dividend yield of 1.02%, it is an attractive bet.

How does NKE stack up for the POWR Ratings?

A for Trade Grade

B for Buy & Hold Grade

B for Industry Rank

B for Overall POWR Rating

The stock is also ranked #9 out of 32 stocks in the Athletics & Recreation industry.

Penn National Gaming, Inc. (PENN)

Penn national gaming focuses on slot machine entertainment, with operations spread in 19 different states. It also has ownership and operational control in over 41 gaming and racing properties across the country.

PENN has a 36% stake in Barstool sports company, which recently entered into the sports betting practice. As the demand for sports betting rises amid social distancing norms, PENN stands to make huge profits from this venture.

Out of the 41 racing properties, 37 have resumed operations as of July 10th, in accordance with the social distancing norms. It has also partnered up with Sportradar to publish NFL data to facilitate online betting. These measures are expected to generate substantial revenue for PENN.

PENN’s EPS is expected to grow 42.6% annually over the next five years. The stock has gained close to 800% since its 52-week low of $3.75 on March 18th due to the pandemic-led market crash.

PENN is rated “A” under Peer grade in our POWR Ratings system. Out of 21 stocks in the Entertainment- Casinos/ Gambling industry, PENN is ranked #5. 

DraftKings, Inc. (DKNG)

DKNG is an online sports platform that holds daily fantasy games, and allows users to engage in sports betting. DraftKings follows the four major American sports leagues — MLB, the NHL, the NFL, the NBA, plus the PGA, Premier League, NASCAR auto racing, UEFA Champions League soccer, Canadian football league, the XFL, Mixed martial arts, and Tennis. 

With a global health emergency causing a temporary halt in sports, the popularity of virtual games has risen. DKNG is gaining popularity among sports enthusiasts as canceled games are being rescheduled, without a physical crowd gathering.

DKNG already has an existing partnership agreement with the NFL, which is expected to generate substantial revenues once the games are rescheduled. With most states looking to legalize sports betting, DKNG’s shares are expected to soar.

DKNG has gained more than 100% since it started trading on April 24th. Its market debut didn't involve a traditional method, as its merger with combination with SBTech and Diamond Eagle Acquisition allowed it to go public without an IPO or direct listing.

DKNG recently launched a virtual New Pennsylvania app, venturing into online gambling platforms. With a wide range of services offered by the company, analysts expect it to outperform the upcoming years.

DKNG’s EPS is expected to grow 14.3% next year.

Want More Great Investing Ideas?

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NKE shares were trading at $96.08 per share on Monday afternoon, down $0.20 (-0.21%). Year-to-date, NKE has declined -4.66%, versus a 1.66% rise in the benchmark S&P 500 index during the same period.



About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.

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