Published on: December 13, 2024, 04:24h.
Last updated on: December 13, 2024, 04:24h.
Shares of Penn Entertainment (NASDAQ: PENN) closed higher by 3.90% today on volume that was well above the daily average after JPMorgan upgraded the gaming stock.
In a latest report to clients, analyst Joseph Greff upgraded his assessment on the regional casino operator to “overweight” from “neutral” while increasing his price target to $27 from $19, indicating a potential upside of around 30% from current levels. He highlighted the importance of ESPN Bet for Penn stock but also mentioned the potential for growth through the company’s regional casino operations.
While the success of ESPN Bet is crucial for the stock, we believe the value of land-based casinos and market access fees could equate to $26 per share, regardless,” noted Greff.
Penn operates 43 casinos and racetracks across approximately twelve states, positioning it as the largest operator of regional gaming venues in the US.
Penn’s Investments in Regional Casinos
Since acquiring a stake in Barstool Sports in early 2020 and reaching a $1.5 billion deal with ESPN last year for the use of the sports network’s branding on its mobile sportsbook, many investors have focused on Penn’s mobile sports wagering segment, overlooking its extensive portfolio of land-based assets.
Some analysts and investors argue against this approach, noting that Penn is currently in an $850 million capital expenditure phase to enhance casinos across the Midwest, South, and Nevada. Greff mentioned that these investments are already showing returns and could yield double-digit returns in the long run.
In Illinois, where it dominates the casino market, Penn is investing $360 million to relocate its Hollywood riverboat casino in Aurora on land. Another $185 million is earmarked for transitioning a riverboat gaming vessel in Joliet onto land. These expenditures could be crucial as casino competition intensifies in the state, leading some analysts to consider market saturation.
Penn is expected to conclude its major investments next year, potentially improving free cash flow in 2026 and allowing the company to reduce its debt and cash interest expenses,” as per Greff.
Potential Transactions for Penn
JPMorgan suggested that if Penn’s interactive business, including ESPN Bet, fails to make significant progress, the company might explore asset sales or mergers and acquisitions. While ESPN Bet shows promise, especially in attracting female and younger bettors, gaining market share from competitors like DraftKings and FanDuel will be a long-term challenge.
Earlier this year, a Penn shareholder recommended the company abandon sports betting and consider a full sale, sparking rumors of a potential takeover by Boyd Gaming (NYSE: BYD). However, no concrete actions were taken, and Penn does not appear eager to sell itself.
In terms of asset sales, Penn has options to potentially divest operating rights to select casinos or sell its interactive business.