Mizuho Securities has adjusted its financial outlook for PENN Entertainment Inc (NASDAQ: PENN), a leading gaming company, by reducing the price target to $24 from the previous $25.
Despite the adjustment, the firm maintains an Outperform rating on the stock.
The revision comes as Mizuho anticipates a weaker performance in the company's land-based retail operations for the third quarter of 2024, citing "poor hold and disruptive weather" as key factors. The firm also adjusted its full-year 2024 estimates downward for the same segment.
In contrast, Mizuho raised its third-quarter projections for PENN's interactive segment due to a stronger-than-expected hold, which is likely to exceed 9% for the quarter, surpassing the fiscal year expectations of 7-8%. However, the firm anticipates a lower hold in the interactive segment for October, leading to a lowered forecast for the fourth quarter.
The analyst's statement provided details on the adjustments: "Heading into 3Q, we lower our 3Q24/FY24 estimates within land-based retail operations on poor hold and disruptive weather, raise our 3Q interactive on better hold (likely ¾9%+ in 3Q vs FY expectations of 7-8%) and lower our 4Q interactive on likely lower hold in October. We maintain our Outperform rating and reduce our PT to $24 ($25 previously)."
In other recent news, 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 ratings follow the company's recent presentation, which provided further details on its operations and near-term prospects.
PENN Entertainment has 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. Key milestones include the anticipated ESPN account linking and the rollout of ESPN's direct-to-consumer offering in the summer of 2025.
PENN's new Chief Technology Officer, Aaron LaBerge, has outlined plans for product enhancements and market expansion. PENN 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
To complement Mizuho's analysis, recent data from InvestingPro sheds additional light on PENN Entertainment's financial situation. The company's market capitalization stands at $2.75 billion, reflecting its significant presence in the gaming industry. However, PENN's financial health presents a mixed picture.
InvestingPro Tips highlight that PENN operates with a significant debt burden and has not been profitable over the last twelve months. This aligns with Mizuho's concerns about the company's land-based retail operations and explains the need for careful financial management.
The company's revenue for the last twelve months as of Q2 2024 was $6.28 billion, with a revenue growth of -4.18% over the same period. This decline in revenue supports Mizuho's decision to lower estimates for certain segments of PENN's business.
It's worth noting that PENN's stock price movements are quite volatile, as indicated by another InvestingPro Tip. This volatility is evident in the company's price performance, with a year-to-date total return of -29.29% as of the latest data.
For investors seeking a more comprehensive analysis, InvestingPro offers additional insights, with 7 more tips available for PENN Entertainment. These tips could provide valuable context for understanding the company's financial outlook and potential investment risks and opportunities.
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