New directors for Penn Entertainment makes it more likely the company opts out of its deal with Disney for ESPN Bet, according to Stifel.
Analyst Jeffrey Stantial maintained his hold rating on Penn but increased his target price to $19 from $17 based on slightly higher second quarter estimates and a positive shift for gaming stocks.
One main focus for Penn’s Q2 earnings call on Aug. 7 will be the messaging around both online sports betting and online casino. Stantial noted the first quarter call shifted away from sports betting with more of a focus on casino, and thinks a similar focus on the Q2 call could be more telling of “potential shifts in strategy,” including opting out of the Disney/ESPN Bet partnership in late 2026.
“On the Interactive front, we see increasing probability PENN exits the ESPN Bet relationship, though likely priced into shares already with overly conservative expectations for long-term iCasino market share,” Stantial said in Thursday‘s note.
Penn’s stock opened Friday at $18.93, down 2% from Thursday’s close.
HG Vora lawsuit playing out
Penn shareholders elected both Johnny Hartnett and Carlos Ruisanchez to its board of directors in June following a lengthy and public back-and-forth with shareholder HG Vora. The investor proposed three directors for nomination, but Penn ultimately decided on two open seats.
The lawsuit in Pennsylvania’s Eastern District Court seeks to have Penn allow all nominees to be voted on by shareholders. While Penn only nominated two for election, the third nominee, Bill Clifford, received 55% support through HG Vora’s proxy card.
“Our legal checks suggest HG Vora’s allegations of fiduciary obligation violation have some merit, though outcome is still difficult to predict,” Stantial said. “For now, we forecast status quo and view approved governance changes favorably, in particular as PENN navigates the forthcoming ESPN opt-out option.”
ESPN Bet share falls on lower promos
Stifel estimates ESPN Bet’s online sports betting handle share around 2.3% in for April and May, which is down from about 2.7% in the first quarter. Penn forecasted a 4.7% share at the end of the year compared to 3.7% at the end of 2024.
Part of that dip in share likely comes from lower promotional spending, Stantial said. Reinvestment as a percentage of handle was lower for Penn than the rest of the market compared to the first quarter, including lower-than-average spending in states that report promotional spending.
“Still, further handle share moderation reinforces our expectation for a pivot to an iCasino-led Interactive strategy,” Stantial said. “Q2TD iCasino GGR share is trending up Q/Q in MI (2.8% from 2.6%) and flat in NJ (1.1%).”
A joint letter in April from CEO Jay Snowden and Chairman David Handler noted that sports betting “has not met our expectations.” On the flip side, online casino has improved after Penn released its standalone Hollywood Casino app.
Updated Q2 estimates
Stantial now forecasts $400 million in adjusted EBITDA for the second quarter, up 2.2% from his prior estimate.
The improvement mostly comes from the interactive business. He now expects the segment to have a negative impact of $52.8 million for the quarter compared to $60.1 million previously.
His land-based adjusted EBITDAR forecast is now $490.9 million, up $1.3 million from his prior estimate.
