On Wednesday, Deutsche Bank adjusted its outlook on PENN Entertainment Inc (NASDAQ: PENN), reducing the price target from $20.00 to $18.00 but maintaining a Hold rating on the stock. The revision follows the third-quarter 2024 guidance provided by PENN's management during an investor event on October 7, 2024, in Las Vegas, and the state results reported for the period to date.
The bank's analyst indicated that the forecasts for the third and fourth quarters of 2024 have been modified, with expectations for the brick-and-mortar (B&M) business being lowered due to underperformance in net revenue, particularly within the Northeast and South segments. This underperformance has been attributed to disruptions, adverse weather conditions, and a challenging calendar, exacerbating the ongoing regional gaming downturn.
In contrast to the B&M segment, Deutsche Bank has raised its projections for PENN's Interactive division for the third quarter of 2024, citing better than anticipated cost controls. Despite this, the analyst anticipates a decline in B&M margins, projecting approximately a 270 basis points year-over-year drop in property level margins for the third quarter of 2024. This is a more significant decline compared to the roughly 150 basis points year-over-year decrease seen in the second quarter of 2024.
The report also notes that excluding certain favorable items from the South region in the third quarter of 2023, the comparative year-over-year decline in property margins would be closer to 190 basis points. During the October 7 investor event, PENN provided guidance for its B&M business, forecasting property EBITDAR in the range of $465 to $475 million for the third quarter of 2024. This guidance was lower than Deutsche Bank's initial estimate of $504 million, which has now been revised to $474 million.
In other recent news, PENN Entertainment Inc. has been the subject of several recent analyst evaluations. Mizuho Securities lowered its price target for the gaming company to $24, citing anticipated weaker performance in land-based retail operations. Despite this, the firm maintained an Outperform rating on the stock. In contrast, Mizuho raised its third-quarter projections for PENN's interactive segment due to a stronger-than-expected hold.
Adding to the recent developments, Jefferies and Wells Fargo have maintained their Hold and Equal Weight ratings on PENN shares, respectively, while Needham and Truist Securities have reiterated their Buy ratings. These evaluations followed PENN's recent presentation, which provided further details on its operations and near-term prospects.
PENN Entertainment reported a record quarter for net gaming revenue in its Interactive segment, with Q2 retail revenue of $1.4 billion and an adjusted EBITDAR of $497 million. The company's betting platform is expected to reach breakeven in 2025 and is projected to become materially profitable by 2026.
PENN's new Chief Technology Officer, Aaron LaBerge, has outlined plans for product enhancements and market expansion. The company plans to introduce a standalone iCasino app by early 2025 and aims to generate positive cash flow from the Interactive unit by 2026.
InvestingPro Insights
Recent InvestingPro data provides additional context to Deutsche Bank's analysis of PENN Entertainment. The company's market capitalization stands at $2.82 billion, with a revenue of $6.28 billion over the last twelve months as of Q2 2024. However, PENN's revenue growth has been negative, with a -4.18% decline over the same period, aligning with Deutsche Bank's concerns about the brick-and-mortar business underperformance.
InvestingPro Tips highlight that PENN operates with a significant debt burden and that stock price movements are quite volatile. These factors may contribute to the challenges faced by the company and the analyst's decision to maintain a Hold rating while lowering the price target. Additionally, analysts do not anticipate the company will be profitable this year, which is consistent with the negative P/E ratio of -7.59 (adjusted for the last twelve months as of Q2 2024) reported by InvestingPro.
For investors seeking a more comprehensive analysis, InvestingPro offers 7 additional tips for PENN Entertainment, providing a deeper understanding of the company's financial position and market performance.
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