ESPN Bet’s Underperformance Causes Analyst to Lower Penn’s Price Target

In a recent development impacting the stock market, Penn Entertainment saw a downgrade in its price target by Deutsche Bank analyst Carlo Santarelli. The analyst revised the target down to $19 per share from the previous $22, maintaining a “Neutral” rating. This alteration came in the wake of a turbulent trading day where Penn Entertainment’s stock closed at $16.28, marking a 2.51% decrease.

Penn Entertainment Faces Downward Revision Due to ESPN Bet’s Performance

The primary reason cited for this downward revision was the larger-than-expected losses incurred by Penn Entertainment in its online operations. Specifically, Santarelli highlighted the disappointing performance of ESPN Bet, attributing the setback to the platform’s mix of parlay and straight bets, which reportedly skewed lower on the parlay side compared to competitors.

Initial projections of a $167 million first-quarter digital loss for Penn Entertainment were revised by Santarelli to a staggering $187 million deficit. 

Despite this setback, some positive indicators were identified within Penn’s brick-and-mortar establishments. The Midwest region showcased strength, compensating for the underperformance observed at Penn’s Dixie casinos.

Although revenue from regional casinos remained stagnant in February and March following a 13% decline in January due to adverse weather conditions, Santarelli revised his cash-flow projection for Penn’s casino portfolio to $481 million for the quarter, up from $478 million. However, the overall cash-flow forecasts for the company diminished to $267 million from the initial estimate of $284 million.

Penn Entertainment’s Future Hinges on ESPN Bet’s Performance

Santarelli emphasized the pivotal role of ESPN Bet in determining Penn Entertainment’s future trajectory. While acknowledging the shares’ multi-year underperformance as intriguing, he advocated for a cautious approach, citing ESPN Bet as the primary driver of the stock’s performance in the foreseeable future.

At the same time in March, Penn Entertainment’s CEO, Jay Snowden, expressed satisfaction with the success of ESPN BET following its launch in 17 US states, recording 1.1 million downloads in its first week. Snowden anticipates further growth for the sportsbook, particularly with upcoming improvements ahead of the football season, aiming to enhance revenue, market share, and overall growth for Penn Entertainment.

Despite the challenges anticipated by analysts in the digital sphere, Penn’s brick-and-mortar casinos were described as stable performers. Furthermore, optimism surrounded Penn Entertainment’s forthcoming upgrades and maintenance program slated for 2024-2025. This initiative includes the construction of new hotel towers at M Resort and Hollywood Columbus, in addition to the establishment of new casinos at Hollywood Joliet and Hollywood Aurora.