Penn Entertainment Has Short-Term Upside, Says Analyst

Posted on: September 14, 2023, 08:36h. 

Last updated on: September 15, 2023, 02:43h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Shares of Penn Entertainment (NASDAQ: PENN) rallied Thursday after a sell-side analyst said the long downtrodden gaming stock has near-term upside potential.

ESPN Bet
The ESPN and Penn Entertainment logos. An analyst says the casino stock has near-term upside potential. (Image: Barrett Sports Media)

The regional casino equity gained 8.72% today on volume, which was more than 60% above the daily average, trimming its year-to-date loss to 21.48%. With the help of bullish commentary from Deutsche Bank analyst Carlo Santarelli, Penn Entertainment notched its highest closing print in nearly a month.

Over the medium to longer term, we believe the risk-reward dynamic, at current levels in shares, is fairly balanced, given the ambiguity around the success of the ESPN Bet strategic pivot,” wrote the analyst. “However, over the near term, we believe a catalyst stack of events, coupled with an inexpensive valuation, relatively elevated short interest and limited investor interest on the long side, create a favorable setup for shares.”

He’s referencing the ten-year, $1.5 billion deal Penn struck last month to license the ESPN Bet brand for its online and retail sportsbooks. This agreement resulted in the regional casino operator divesting Barstool Sports back to founder David Portnoy for just $1.

Santarelli has a “hold” rating on Penn stock with a $29 price target, implying upside of 24.3% from the Sept. 14 close.

Questions Linger About Penn/ESPN Bet Potency

There’s no denying that the ESPN brand resonates with bettors and sports fans alike and could prove more potent for Penn’s sports wagering ambitions than Bartsool Sportsbook was.

While Barstool Sports, the media property, has enviable brand recognition of its own, it’s in a different tier than ESPN. Penn could never convert enough “Stoolies” to its sports betting unit. Still, some analysts have questions about the ability of Penn and ESPN Bet to be legitimate competitors in the ultra-competitive US sports wagering arena.

While the deal is viewed as a potential watershed moment for Penn and ESPN, some analysts doubt the ability of the new sportsbook brand to mount a credible challenge to the massive market share held by Flutter Entertainment’s (OTC: PDYPY) FanDuel and DraftKings (NASDAQ: DKNG).

Those two operators control more than two-thirds of the US sports wagering market, but a recent investor conference, Penn CEO Tim Snowden sounded optimistic that ESPN Bet could help his company elevate market share.

Expect ESPN Bet Clarity Soon

ESPN Bet isn’t officially live. Penn is expected to have the brand operational in November, in time to capture the tail end of the NFL season and most of the NBA season. Santarelli noted it’s possible the operator could make some online sports betting (OSB) and gross gaming revenue (GGR) strides.

We expect the launch to drive healthy handle and GGR OSB market share gains while also garnering considerable attention from mainstream financial media outlets,” Santarelli said in his report. While the longer-term success of the customer acquisition spend will remain ambiguous throughout 2023, we expect the burden to rest with the Bear in the early stages of market share gains, and, as such, we expect shares to respond well to the gains we anticipate in November and December.”

He added that a Penn analyst day next month and an investor day in December could clarify the early projections and performance of the ESPN deal.