Penn Stock Analyst Turns Bullish On ESPN Bet Strength, Casino Improvements: 'Favorable Risk-Reward'

PENN Entertainment (NASDAQ:PENN) received a Wall Street upgrade Friday on a positive outlook for both its casino and sports betting segments.

The PENN Analyst: JPMorgan analyst Joseph Greff upgraded shares of Penn from Neutral to Overweight and raised the price target from $19 to $27.

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The Analyst Takeaways: Penn has a favorable risk-reward going forward, Greff said in a new investor note.

The analyst said there is a sightline to the "bottoming of its regional land-based casino cashflow generation" and a path to modest growth for its retail projects.

"In addition, we see reasonably set expectations for near-term Interactive (OSB and iGaming) losses for the 4Q24 and 2025 with buy-side expectations for modestly positive EBITDA generation in 2026," Greff said.

Greff said ESPN Bet continues to be one of the biggest drivers for the stock.

"We see a scenario of modestly positive segment EBITDA as not priced in the shares and, importantly, is not that much more than PENN's estimated annual market access fees."

Penn pays Walt Disney Co (NYSE:DIS) for the rights to the ESPN name and brand. Greff said if ESPN Bet is not profitable, the company could shut it down and "milk the $60m-ish of market access fees."

The analyst said company commentary said monthly active users were up 144% year-over-year for ESPN Bet with average handle per user up 64% month-over-month. Enhancements made by Penn to further integrate the ESPN brand into the platform ahead of the NFL season look to have paid off, the analyst added.

The analyst said if ESPN Bet isn't successful, there is still value of the company's land-based casinos and market access fees that sportsbooks pay the company, assigning a value of $26 for this segment.

Penn's $850 million being spent in 2024 and 2025 on four retail growth projects is highlighted by the analyst, which includes replacing a riverboat facility with a land-based casino and hotel, developing a new land-based casino and adding hotels for the Hollywood Columbus and M Resort properties.

"Net-net we see a favorable fundamentally driven risk-reward given improving free cash flow … and shrinking Interactive losses."

PENN Price Action: Penn stock is up 3.60% to $20.73 on Friday versus a 52-week trading range of $13.50 to $27.21. Penn stock is down 20% year-to-date in 2024.

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