Upgrade Initiated by JPMorgan for Penn Entertainment
Penn Entertainment, the largest operator of regional gaming venues in the United States, is preparing for a significant change as its largest expenditures are expected to come to an end next year. The company, which operates 43 casinos across roughly a dozen states, has been a staple in the gaming industry.
However, the focus is shifting as Penn Entertainment considers potential asset sales or mergers and acquisitions, particularly if its mobile sports betting segment, including ESPN Bet, does not make notable progress. Some potential suitors could be firms specializing in gaming content, land-based and iGaming platform services, or media and entertainment companies expanding into sports gambling. Notable names include Everi Holdings, a company that develops gaming systems and services, and other major players looking to strengthen their position in the U.S. sports betting market.
Joseph Greff, an analyst at JPMorgan, has boosted his price target for Penn Entertainment to $27 from $19, upgrading the gaming stock to "overweight" from "neutral". Greff sees some degree of ESPN Bet success as the single biggest driver for the stock. Signs are emerging that ESPN Bet is making progress, particularly in its ability to capture female and younger bettors, which could be a significant advantage in the competitive sports betting market.
Despite the potential for changes, Penn doesn't appear to be a willing seller. The company has levers to potentially pull, including divesting operating rights to select casinos or a sale of its interactive business. Greff wrote that the value of the land-based casinos and market access fees equates to $26 per share.
Penn has been investing heavily in its physical properties. It is spending $185 million to bring a riverboat gaming vessel ashore in Joliet, Illinois, and $360 million to bring its Hollywood riverboat casino in Aurora, Illinois, ashore. These investments are aimed at modernizing and expanding its offerings, positioning Penn for continued growth in the land-based gaming sector.
Free cash flow could improve in 2026 for Penn, and the company could de-lever and reduce its cash interest expense during the same period. These financial improvements, combined with potential progress from ESPN Bet, could make Penn an attractive target for interested parties or a strong contender in its own right.
On December 13, 2024, shares of Penn Entertainment (NASDAQ: PENN) closed higher by 3.90%, reflecting optimism in the company's future prospects. As the gaming industry evolves, Penn Entertainment continues to be a company to watch.
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