Wednesday - BofA Securities has initiated coverage on PENN Entertainment Inc (NASDAQ: PENN) with a Neutral rating and set a price target of $22.00. The firm's analysis followed PENN's third-quarter performance, which aligned with its pre-announcement. BofA's outlook for the fourth quarter indicates expectations of flat regional revenue and a 6% year-over-year decline in EBITDA, consistent with their estimates.
Looking ahead to 2025, BofA Securities anticipates core regional EBITDA to be 3% lower than their previous predictions, which is $80 million below the consensus among analysts. This downward adjustment is attributed to anticipated increased supply and margin pressures.
Additionally, the firm forecasts an online segment loss of $146 million for PENN Entertainment, marking an improvement from the $470 million loss expected in 2024 but still $80 million below market expectations due to a combination of lower market share and higher fixed costs.
The valuation of PENN Entertainment currently stands at 7 times EBITDAR (Earnings Before Interest, Taxes, Depreciation, Amortization, and Restructuring or Rent Costs) with a tax-adjusted free cash flow (FCF) yield of 10.8%. This valuation is compared to a long-term average of 7.5 times EBITDAR and closely mirrors the average FCF yield of its peers, which is 10.7%.
BofA Securities highlighted the significant sensitivity of PENN's stock value to EBITDAR multiples, noting that a change of 1x in EBITDAR could lead to a stock price fluctuation of approximately 55%.
In other recent news, PENN Entertainment reported stable financial performance in its Q3 earnings call, with retail revenue reaching $1.4 billion and adjusted EBITDA at $472 million, surpassing preliminary estimates. However, the Interactive segment reported an adjusted revenue of $141 million with an EBITDA loss of $91 million.
The company also noted market share growth in Ohio, Massachusetts, and Kansas, with ESPN BET's retail sportsbooks expanding and monthly active users growing by 127% year-over-year.
In additional developments, PENN Entertainment has four growth projects in progress, including the Hollywood Joliet, which is scheduled to open in the second half of 2025. The company projects Q4 2024 retail revenue to be between $1.36 billion and $1.38 billion and anticipates positive free cash flow beginning in 2025.
Despite weather-related disruptions and renovations at L'Auberge Casino (EPA:CASP) leading to market share declines in the Northeast and South, PENN remains optimistic about stable consumer demand and strategic enhancements to their offerings.
The company also highlighted the successful expansion in sports betting, evidenced by the launch of new ESPN BET retail sportsbooks and substantial growth in the digital user base.
InvestingPro Insights
Recent InvestingPro data provides additional context to BofA Securities' analysis of PENN Entertainment. The company's market capitalization stands at $3.22 billion, with a negative P/E ratio of -7.91 over the last twelve months as of Q3 2024, aligning with BofA's cautious outlook. PENN's revenue for the same period was $6.3 billion, showing a slight decline of 3.79% year-over-year, which supports the firm's expectations of flat regional revenue.
InvestingPro Tips highlight PENN's significant debt burden and volatile stock price movements, factors that investors should consider alongside BofA's valuation metrics. The company's strong return over the last month (16.31%) and significant uptick over the last six months (35.81%) suggest market optimism, despite analysts revising earnings downwards for the upcoming period.
These insights complement BofA's analysis, offering a broader picture of PENN's financial health and market perception. InvestingPro offers 10 additional tips for PENN Entertainment, providing investors with a more comprehensive analysis tool.
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