Regional strengthening for Penn, according to Jefferies analyst's assessment
Jefferies Equity Research analyst David Katz has maintained a "Hold" rating on Penn Entertainment stock, citing concerns about the performance of the company's regional casinos and the need for market share gains to drive growth.
Katz's analysis reveals that Penn's regional casinos are underperforming, with a 1.6% increase in revenue compared to a 3.2% industry-wide lift. He attributes this weakness to challenges in the regional gaming market, which appear to be impacting Penn Entertainment's overall growth.
The analyst emphasises the need for Penn Entertainment to make gains in the market, as the Street is looking for evidence of such improvements to ascribe value to the business. Katz points out that the company's digital side, particularly the ESPN Bet app, is in a favourable position ahead of the NFL season.
Despite the challenges in the regional casino sector, Katz is optimistic about the potential for enhanced marketing and customer engagement through ESPN Bet's integration with ESPN's platforms. However, overall profitability and progress in regional operations remain crucial for a more positive outlook on Penn Entertainment's stock.
Katz has set a $20-per-share price target on Penn Entertainment stock, which was trading at $17 at the time of his report. He expects modest growth in land-based operations and a reversal of losses in digital for Penn Entertainment.
The analyst also notes specific revenue boosts at River City in St. Louis and Plainridge Park in Massachusetts for Penn Entertainment. However, he expresses concerns about declines in revenue at Penn's Margaritaville casino in Bossier City, Louisiana, and Hollywood Greektown in Detroit.
In addition to these concerns, Katz is interested in understanding Penn's perspective on recent increases in sports-betting taxes. He believes that the path to profitability for ESPN Bet is understood, but the Street requires evidence of market share gains to ascribe value to the business by 4Q25.
[1] Source: Jefferies Equity Research, David Katz's report on Penn Entertainment [5] Source: Penn Entertainment's Q2 2023 earnings report
- The performance of Penn Entertainment's regional casinos is a cause for concern, as they have only seen a 1.6% increase in revenue, while the industry average is 3.2%.
- To drive growth, Katz suggests that Penn Entertainment needs to make market share gains, especially considering the high expectations from the Street.
- Katz is optimistic about Penn Entertainment's digital side, particularly the ESPN Bet app, which he believes is well-positioned ahead of the NFL season.
- In his report, Katz set a $20-per-share price target for Penn Entertainment stock, which was trading at $17 at the time.
- Katz also noted specific revenue boosts at River City in St. Louis and Plainridge Park in Massachusetts, but expressed concerns about declines in revenue at Margaritaville casino in Bossier City and Hollywood Greektown in Detroit.
- Another concern for Katz is the recent increase in sports-betting taxes and its potential impact on Penn Entertainment's profitability.
- By 4Q25, the Street requires evidence of market share gains for Penn Entertainment's digital business, such as the ESPN Bet app, to ascribe value to the company.
