Penn Entertainment stock jumped more than 5% Tuesday after an analyst upgrade put the focus on the company’s regional casino business following years of struggles in online sports betting.
Deutsche Bank analyst Carlo Santarelli upgraded Penn to buy from hold and raised his price target to $25 from $23, citing stable regional gaming fundamentals, improving calendar trends and encouraging returns from recent casino investments.
Shares of PENN entered Tuesday down roughly 33% over the past three months, compared with a 3% gain for the S&P 500, even as Santarelli increased its adjusted EBITDAR estimates for the company by about 2%. The new target implied roughly 66% upside from Penn’s share price when the report was published.
“We believe the recent selloff has been driven more by macro concerns and risk off sentiment than by any meaningful deterioration in company specific fundamentals,” Santarelli wrote.
Shares closed at $15.91, up 5.4% from Monday.
Penn regional casinos drive upgrade
Deutsche Bank’s third-quarter adjusted EBITDAR forecast sits about 1.9% above consensus, driven primarily by higher expectations for Midwest and Northeast casino segments.
Santarelli expects regional gaming trends to improve after calendar quirks weighed on August results. Deutsche Bank estimates one fewer Friday and the Labor Day shift created a roughly 2.5 percentage point headwind to August gross gaming revenue.
Those effects began reversing in September, when Santarelli estimates the calendar provided a roughly 0.4 percentage point tailwind along with the Labor Day shift. October could provide another 2.4 percentage point boost, according to Santarelli.
Santarelli also cited strong early returns from investments in Aurora, Joliet, Columbus and M Resort. Future projects, including Hollywood Casino Council Bluffs, could provide additional earnings growth as well.
Moving on from ESPN Bet, Barstool
The upgrade follows years of failed attempts to build a competitive online sports betting business through Barstool Sports and later ESPN Bet.
Penn acquired Barstool for $551 million before selling it back to founder Dave Portnoy for $1 in 2023. Penn then agreed to pay ESPN $150 million annually, plus stock warrants, for media, marketing and exclusive rights to the ESPN Bet brand under a 10-year agreement. Both companies ended the partnership early in last December after the app failed to hit market share goals.
Penn has since returned to using theScore Bet brand in the U.S. and shifted its digital focus toward its growing online casino business. Earlier this month, it signed a multiyear agreement making it an official NFL sports betting and online casino partner in Canada.
Penn reports third-quarter earnings Nov. 5.
