Deutsche Bank Offers Positive Remarks on Penn Entertainment

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

Last updated on: September 14, 2023, 08:36h.

Shares of Penn Entertainment (NASDAQ: PENN) surged today following a positive outlook from a sell-side analyst who believes the struggling gaming stock has potential for short-term gains.

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

The regional casino operator saw an 8.72% increase in shares today, with trading volume surpassing the daily average by more than 60%. This boosted its year-to-date losses down to 21.48%. Deutsche Bank analyst Carlo Santarelli’s positive remarks contributed to Penn Entertainment achieving its highest close in almost a month.

According to the analyst, “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. 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.”

Santarelli is referring to Penn’s recent ten-year, $1.5 billion deal with ESPN Bet, which licenses the brand for its online and retail sportsbooks. As part of the agreement, the regional casino operator sold Barstool Sports back to its founder David Portnoy for just $1.

Santarelli has a “hold” rating on Penn stock with a $29 price target, indicating a potential upside of 24.3% from the closing price on September 14.

Uncertainty Surrounds Penn/ESPN Bet Potential

While the ESPN brand has significant appeal to bettors and sports fans, it remains unclear whether it can enable Penn to achieve greater success in the sports wagering industry compared to Barstool Sports did.

Although Barstool Sports has its own strong brand recognition, it is in a different league than ESPN. Penn struggled to convert a sufficient number of “Stoolies” to its sports betting unit. While some analysts question the ability of Penn and ESPN Bet to compete against market leaders Flutter Entertainment’s FanDuel and DraftKings, the deal could be a pivotal moment for both Penn and ESPN.

While ESPN Bet has not yet launched officially, Penn aims to have the brand up and running by November to take advantage of the NFL and NBA seasons. Santarelli suggests that this could lead to advancements in online sports betting market share and gross gaming revenue.

“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 stated in his report. “While the longer-term success of customer acquisition spending remains uncertain throughout 2023, we anticipate 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 an upcoming Penn analyst day and investor day could provide further clarity on the early projections and performance of the ESPN deal.

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