Shares of Penn Leisure (NASDAQ: PENN) closed increased by 3.90% at the moment on quantity that was nicely above the every day common after JPMorgan upgraded the gaming inventory.
A slide from a Penn Leisure investor presentation. JPMorgan upgraded the inventory at the moment, sparking a rally. (Picture: Penn Leisure)
In a brand new report back to purchasers, analyst Joseph Greff lifted his score on the regional on line casino operator to “chubby” from “impartial” whereas boosting his worth goal to $27 from $19, implying upside of about 30% from present ranges. He famous that whereas ESPN Guess looms massive for the Penn inventory thesis, there are pathways to upside for the shares through the corporate’s regional on line casino enterprise.
Some extent of ESPN Guess success is the one greatest driver for the inventory, (however) we see the worth of the land-based casinos and market entry charges equating to $26 per share, in any occasion,” wrote Greff.
Penn operates 43 casinos and has racetracks strewn throughout roughly a dozen states, making it the most important operator of regional gaming venues within the nation.
Penn Spending to Improve Regional Casinos
Since its acquisition of a stake in Barstool Sports activities in early 2020 adopted by a $1.5 billion settlement reached final 12 months with ESPN to make use of the sports activities community’s branding on its cell sportsbook, a lot of the funding neighborhood has seen Penn by means of lens of cell sports activities wagering, glossing over the operator’s expansive portfolio of land-based property.
Some analysts and traders have argued that shouldn’t be the case. Not when Penn is within the midst of a $850 million capital expenditure cycle aimed toward sprucing up casinos from the Midwest to the South to Neavda. Greff stated a few of that spending is already paying dividends and will generate double-digit returns on funding over the long-term.
In Illinois, the place it’s the dominant on line casino operator, Penn is spending $360 million to carry its Hollywood riverboat on line casino in Aurora ashore. One other $185 million is allotted to carry a riverboat gaming vessel ashore in Joliet. These expenditures may show essential as a result of on line casino competitors is growing within the sixth-largest state, a lot in order that some analysts are pondering saturation within the gaming market there.
Penn’s largest expenditures are anticipated to come back to an finish subsequent 12 months, that means free money circulation may enhance in 2026, permitting the gaming firm to “de-lever and cut back its not so burdensome money curiosity expense,” in accordance with Greff.
Penn Transactions Attainable
JPMorgan added that ought to Penn’s interactive enterprise, which incorporates ESPN Guess, not make notable progress, it’s attainable the operator may take into account asset gross sales or mergers and acquisitions. Indicators are rising that ESPN Guess is making progress, notably in its potential to seize feminine and youthful bettors, however wresting market share from the likes of DraftKings and FanDuel is a long-term endeavor.
Earlier this 12 months, a Penn shareholder stated the corporate ought to abandon sports activities betting and take into account a sale of itself outright, sparking rumors of a possible takeover by rival Boyd Gaming (NYSE: BYD), however nothing got here of that hypothesis and Penn doesn’t look like a prepared vendor.
By way of asset gross sales, Penn has levers to probably pull, together with divesting working proper to pick out casinos or a sale of its interactive enterprise.
