Penn Gets “Hold” Rating as Casinos Lag, ESPN Bet App in “Best Position”

Jefferies analyst David Katz, who recently called DraftKings’ binary events contracts policy “measured” and maintained a Buy recommendation for Light & Wonder’s stock in December 2024, is now maintaining a cautious Hold rating on Penn Entertainment’s stock. 

Slow Growth for Regional Casinos 

Katz has decided to stick to his original $20 price target despite shares trading closer to the $17 mark. In a recent note sent to clients, Katz referred to the underwhelming growth in Penn’s regional casino portfolio as an argument for his recent rating.

While regional casinos overall recorded a 3.2% gain, Penn’s properties lagged behind with a modest 1.6% uptick. The analyst suggested that the company with a focus on “reimagining the entertainment experience” is staying behind competitors who have chosen to invest more in their promotional efforts as a way of driving more traffic. 

“This may be indicative that [Penn] has not increased promotions to drive growth, a theme discussed by peers, but we believe top-line growth is a key element of stock performance,” he wrote.

However, not all properties underperformed. Katz spoke about the revenue growth recorded at River City Casino in St. Louis (6.2% in April, 12% in May, 2.5% in June) and Plainridge Park in Massachusetts (9.2% in April, 15.6% in May, 5.9% in June).

However, other sites told a different story. Hollywood Greektown in Detroit posted three straight months of declines. The property was down 0.2% in April, 12.5% in May, and 3.8% in June. 

It was worse at Margaritaville in Bossier City, Louisiana, which dropped 12.9%, 20.7%, and 11.1% during that same timeframe.

“The strength in regional [gross gaming revenue] appears to have benefited Penn less than peers,” Katz wrote, adding that “expectations and the shares point to modest growth in land-based and reversal of losses in digital.”

Optimism Regarding the ESPN Bet App

On the digital side, Katz sees reason for optimism. He noted that Penn’s ESPN Bet app is finally starting to take shape ahead of the crucial NFL season. 

“Our impression from conversations with management and investors suggests that the ESPN Bet product is in its best position in time for the start of the NFL season.”

ESPN Bet’s integration with the network’s fantasy and direct-to-consumer platforms could enhance marketing efforts and customer engagement in the coming months. 

Still, Katz called the “path to profitability” by the fourth quarter of the current year “well understood”, despite the Street requiring “evidence of [market] share gains to ascribe value for the business.”Katz further added he was looking for updates on regional gaming trends, sports betting tax implications, ongoing stock buybacks, and a plan for reducing debt during Penn’s upcoming earnings call.