On Tuesday, Truist Securities sustained their positive stance on PENN Entertainment Inc (NASDAQ: PENN) shares, reiterating a Buy rating and a $25.00 price target. The firm's analyst highlighted the G2E Investor Day, noting PENN's promising early performance indicators for ESPN Bet and the potential for significant EBITDA contributions from the Interactive segment by 2026.
The pre-released third-quarter results were seen as generally aligned with expectations, despite softer Retail EBITDA, which was somewhat anticipated. The lower-than-expected Interactive losses were seen as a positive offset.
During the G2E Investor Day, PENN Entertainment provided insight into its upcoming strategies, particularly emphasizing the development of ESPN Bet and the Interactive division. The company expects these areas to become considerable EBITDA contributors in the next few years.
The pre-released third-quarter figures indicated that Retail EBITDA is projected to be between $465-475 million, which is slightly below the midpoint estimate of $470 million by both the company and market analysts. This shortfall was attributed to less favorable hold rates in the Northeast and volume declines in the South, impacted by weather and construction disruptions.
Additionally, the company received a $14 million insurance proceeds benefit in the third quarter of 2023, which will make year-over-year comparisons more challenging. Despite these setbacks, the management reassured that consumer health remains stable.
The Interactive segment's expected EBITDA loss for the third quarter is forecasted to be between $90 million and $100 million, more favorable than the anticipated losses of $125 million to $128 million by analysts and the company's own previous guidance of a $115 million to $135 million loss.
The improvement in the Interactive segment's performance was attributed to a more favorable hold and parlay mix, along with reduced promotional expenses. PENN's delayed launch in New York's online sports betting market until the fourth quarter is not believed to have significantly impacted third-quarter earnings, given the company's cautious approach to entering the high-tax state.
Full details of PENN Entertainment's third-quarter performance will be disclosed, and an earnings call is scheduled for Thursday, November 7th.
In other recent news, PENN Entertainment Inc has been the focus of several analyst firms. Deutsche Bank maintained a Hold rating on PENN shares with a consistent price target of $20.00, while Stifel also reiterated a Hold rating with the same target price. Barclays reaffirmed an Overweight rating on the shares, maintaining a $23.00 price target. These ratings followed PENN's Investor Day event and the company's second-quarter 2024 results announcement.
PENN reported a record quarter for net gaming revenue in its Interactive segment and Q2 retail revenue of $1.4 billion with an adjusted EBITDAR of $497 million. The company's Interactive division, live in 19 jurisdictions with nearly 4 million unique users, has seen a narrowed quarter-over-quarter loss. PENN plans to introduce a standalone iCasino app by early 2025 and aims to generate positive cash flow from the Interactive unit by 2026.
The company also introduced its new Chief Technology Officer, Aaron LaBerge, who has outlined plans for product enhancements and market expansion. Furthermore, PENN has announced an upcoming integration between ESPN BET and the ESPN app set for November. These recent developments demonstrate PENN's commitment to its digital strategy and partnerships.
InvestingPro Insights
To complement the analysis provided by Truist Securities, recent data from InvestingPro offers additional context on PENN Entertainment's financial position. The company's market capitalization stands at $2.78 billion, reflecting its significant presence in the gaming industry. Despite the positive outlook for ESPN Bet and the Interactive segment, InvestingPro Tips highlight that PENN operates with a significant debt burden and is not currently profitable, with a negative P/E ratio of -7.46 for the last twelve months as of Q2 2024.
The company's revenue for the same period was $6.28 billion, with a gross profit margin of 38.54%. However, the revenue growth showed a slight decline of -4.18% year-over-year, aligning with the softer Retail EBITDA mentioned in the article. The EBITDA for the last twelve months was $485.6 million, though it is worth noting an EBITDA growth decline of -67.22%, which may explain the company's focus on future growth through its Interactive segment.
InvestingPro Tips also indicate that analysts do not anticipate the company to be profitable this year, which underscores the importance of the potential EBITDA contributions from the Interactive segment by 2026, as highlighted in the article. For investors seeking a more comprehensive analysis, InvestingPro offers 7 additional tips for PENN Entertainment, providing a deeper dive into the company's financial health and market position.
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