Shares of Penn Leisure (NASDAQ: PENN) traded decrease at the moment after Financial institution of America pared its score on shares of the regional on line casino operator.
Penn Leisure’s brand. An analyst downgraded the inventory, citing balanced risk-reward. (Picture: On line casino.org)
In a brand new report back to shoppers, analyst Shaun Kelley downgraded Penn to “impartial” with a worth goal of $22. That means restricted upside from the $21 space at which the inventory resides at this writing. The analyst mentioned Penn margins might be crimped within the coming quarters on account of elevated competitors in some Midwest markets and Louisiana.
In regionals, we count on income and margin stress from new provide to proceed in 4Q and 2025 with acute impacts in Iowa/Council Bluffs, Illinois/Indiana (Joliet/East Chicago) and Louisiana (Bossier Metropolis) from on line casino openings, earlier than getting a lift from $850M of capex opening in late ‘25 and ’26,” noticed Kelley.
In Illinois, the place it’s the dominant on line casino operator, Penn is spending $360 million to convey its Hollywood riverboat on line casino in Aurora ashore. One other $185 million is allotted to convey a riverboat gaming vessel ashore in Joliet. These expenditures might 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.
Downgrade Comes as Penn Is on Torrid Tempo
Financial institution of America’s downgrade of Penn arrived because the gaming inventory is on a torrid run. The shares are up 9.70% within the week since Election Day and almost 14% over the previous month — positive aspects which have trimmed the inventory’s year-to-date loss to lower than 19%.
Nevertheless, massive positive aspects briefly timeframes might be among the many explanation why the analysis agency views Penn’s risk-reward profile as “balanced” in the meanwhile. Kelley talked about earnings threat at regional casinos, elevated fastened prices, and market share woes as among the many points that would weigh on the Penn bull thesis over the near-term.
Moreover, the operator’s already sizable debt burden is growing as a result of aforementioned spending on enhancements at regional casinos. Kelley estimates Penn’s leverage will climb to six.3x subsequent 12 months, marking a roughly 50% leap from the degrees seen in 2021.
However, the BofA analyst famous Penn is transferring previous peak leverage and losses, indicating it’s doable its stability sheet corporations over the course of subsequent 12 months and into 2026.
ESPN Guess Points Linger
Penn’s ESPN Guess unit has lengthy been a supply of concern and criticism amongst analysts and traders and whereas there was not too long ago discuss the web sports activities betting enterprise was making progress, Kelley contests that assertion, noting ESPN Guess’s market share stays tepid.
The analyst estimates ESPN Guess has simply 3% market share in sports activities wagering and a pair of% in iGaming — figures which might be half what Penn projected in the beginning of 2024.
On the intense facet, Kelley pointed that ESPN Guess has made some vital technological strides in latest month, which might pay dividends when it comes to buyer acquisition and including market share.
