On Thursday, Truist Securities expressed continued confidence in PENN Entertainment Inc (NASDAQ: PENN), maintaining a Buy rating and a $23.00 price target for the company's stock. The firm's stance comes after PENN Entertainment reported third-quarter results that matched expectations, which had previously been disclosed at the G2E Investor Day.
The analyst from Truist Securities highlighted the stability of PENN's land-based operations, noting month-over-month momentum that is expected to extend into the fourth quarter. The focus is now on the performance of ESPN Bet, which is showing promising key performance indicators (KPIs) as the company works on enhancing the product.
While the fourth-quarter guidance for the retail segment aligns with forecasts, the outlook for Interactive losses is less favorable, primarily due to unfavorable hold in the quarter to date—a factor that was already widely recognized. Despite this, the analyst pointed out that with the land-based segment showing steadiness, there is optimism surrounding the ongoing improvements on the Interactive side of the business.
The analyst commented, "PENN reported an in-line Q3 following the company's pre-release at G2E Investor Day. Land-based remains stable, with M/M momentum carrying into Q4. All eyes remain on ESPN Bet, with encouraging KPIs as PENN continues to improve the product. Q4 guidance was in-line for retail though less favorable for Interactive losses, entirely given unfavorable hold 4QTD (widely known).
Net-net, with land-based steady, we're encouraged by continued blocking & tackling on the Interactive side though await some translation to share gains in state-reported data. Remain Buy w/ $23 PT, Q4E ests tweaked for guide with no major changes otherwise."
The expectation is that PENN will continue to fine-tune its Interactive segment, which could eventually translate to gains in market share as reflected in state-reported data. The analyst has made minor adjustments to the fourth-quarter estimates in response to the guidance provided, without making any significant changes to the overall outlook.
In other recent news, PENN Entertainment Inc. reported mixed third-quarter results, with earnings per share slightly surpassing analyst expectations, but revenue falling short. The company recorded a loss of $0.25 per share, beating the predicted $0.26 per share loss, and revenue of $1.64 billion, missing the consensus forecast of $1.66 billion.
Morgan Stanley (NYSE:MS) maintained its Equalweight rating on PENN shares, while Barclays (LON:BARC) reaffirmed its Overweight rating. Both firms highlighted the company's improved cost management within its digital operations and the strong start to the fourth quarter in the retail sector.
PENN's Interactive segment reported an EBITDA loss of $90.9 million, slightly outperforming Morgan Stanley's and consensus expectations. The company also launched a significant initiative enabling account linking between ESPN Bet and ESPN, and is preparing to introduce a standalone iCasino in the first quarter of 2025. These developments are part of PENN's strategy to evaluate and expand its potential in the digital segment.
Lastly, PENN Entertainment's retail business experienced stable consumer demand, but outcomes were influenced by unfavorable hold in the Northeast segment and volume decreases in the South due to severe weather and accelerated hotel remodeling. The company concluded Q3 with $834 million in cash and cash equivalents.
InvestingPro Insights
To complement Truist Securities' analysis of PENN Entertainment Inc, InvestingPro data offers additional context for investors. As of the latest available data, PENN's market capitalization stands at $3.01 billion, reflecting the market's current valuation of the company. The company's revenue for the last twelve months as of Q2 2024 was $6.28 billion, with a revenue growth rate of -4.18% over the same period, aligning with the analyst's observations about the company's performance.
InvestingPro Tips highlight that PENN operates with a significant debt burden, which could be a factor in the company's financial strategy as it navigates the challenges in its Interactive segment. Additionally, the stock price movements are noted to be quite volatile, which may be of interest to investors considering the recent performance and future prospects of ESPN Bet.
It's worth noting that analysts do not anticipate the company will be profitable this year, which correlates with the reported Interactive losses and the less favorable outlook for this segment. This information adds depth to the discussion of PENN's financial health and future earnings potential.
For investors seeking a more comprehensive analysis, InvestingPro offers 5 additional tips that could provide further insights into PENN Entertainment's financial position and market performance.
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