Penn Entertainment Has ‘Unrecognized Value,’ Says Analyst

Posted on: August 16, 2024, 05:11h. 

Last updated on: August 16, 2024, 05:12h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Shares of Penn Entertainment (NASDAQ: PENN) are on a wild ride as highlighted by a 26% year-to-date drop and a 20.7% surge over the past 90 days — the latter indicating the potential is there for a durable resurgence.

ESPN Bet Penn Entertainment sports betting
The ESPN Bet logo. An analyst is constructive on operator Penn Entertainment, citing multiple factors. (Image: ESPN Bet)

Some analysts remain constructive on the battered regional casino stock. For example, Truist Securities analyst Barry Jonas recently met with Penn management, prompting him to reiterate a “buy” rating and $25 price target. That implies upside of almost 30% from today’s closing print at $19.24.

The stock has been a battleground of late amid rumors that the company is a takeover target and with a vital football season nearing — one that could go a long way in determining the fate of ESPN Bet. Those issues may be distracting from Jonas calls “largely steady” trends at Penn’s land-based casinos, compelling the analyst to observe Penn possesses “real unrecognized value.”

Takeover chatter pertaining to Penn started in late May when investor the Donerail Group sent a letter to the gaming company’s board of directors encouraging it to sell itself to increase shareholder value. Since then, analysts have consistently said such a transaction is unlikely and it’s probable that Penn is not a willing seller.

LaBerge Hire Could Be Meaningful for Penn

With some industry observers viewing the 2024 football seasons as make-or-break time for ESPN Bet, Penn’s hiring of former Walt Disney (NYSE: DIS) executive Aaron LaBerge as chief technology officer (CTO) could bear fruit.

Though he hasn’t worked in the gaming space before, we believe the benefits of his prior experience far outweigh any online sports betting-specific intricacies (which can be learned), especially with strong support at PENN,” wrote Jonas.

While at Disney, LaBerge played important roles in developing the company’s non-theme park mobile applications, including one for ESPN and another for the sports network’s fantasy sports games.

Jonas added that at a time when Penn’s ESPN Bet is attempting to close the gap with rivals DraftKings and FanDuel, LaBerge could be a valuable addition to the gaming company because while at Disney, he had experience developing tech to address rivalries. Jonas cited the example of Disney vs. Neflix in streaming entertainment.

Netflix “had a 10-year and many-million-subscribers head start, though DIS was able to compete in time as its product became increasingly sophisticated,” noted Jonas.

More ESPN Bet Insight

The bulk of Penn’s earnings and revenue are derived from its land-based casinos, but ESPN Bet has taken center stage in the eyes of many investors. That makes Penn’s planned enhancements to the sports betting app pivotal.

Jonas pointed out that ESPN Bet growth is likely to be gradual, but he applauded the operator’s efforts in catering to both avid and recreational bettors. The analyst added the app is gaining above-average traction with female bettors.

An area to keep an eye on is Penn’s ability to smooth out some issues with Hollywood Casino-branded iGaming platform, which to date hasn’t materially benefited from conversions from ESPN Bet. Jonas said management is highly focused on improving iGaming execution.