Analyst Predicts Momentum for Penn Entertainment in Coming Months
Shares of Penn Entertainment (NASDAQ: PENN) increased significantly yesterday as a result of optimistic remarks from a selling-side analyst. The gaming stock, which has been struggling for a long time, now has the potential for short-term growth.
The regional casino company's equity shot up by 8.72% during trading, with an unusually high volume of 60% above the daily average. This move brought the annual loss down to 21.48%. The uplifting news came from Deutsche Bank analyst Carlo Santarelli, who suggested that the risk-reward balance in shares is fair now, even though there's some uncertainty about the success of the ESPN Bet strategic shift. However, he believes that in the near term, with a series of upcoming events, an inexpensive valuation, high short interest, and low investor interest, the situation looks favorable for shares.
Deutsche Bank's Take on Penn/ESPN Bet
Santarelli's remarks are in reference to the recent deal between Penn and ESPN, where the former agreed to license the latter's brand for their online and land-based sportsbooks at a cost of $1.5 billion for ten years. This deal resulted in Penn's divestment of Barstool Sports back to its founder, David Portnoy, for a mere dollar.
While Santarelli has a "hold" rating for Penn shares with a price target of $29, it would result in a 24.3% price increase if the stock closes today at its current value.
ESPN Bet vs. FanDuel and DraftKings
It's undeniable that the ESPN name has a strong connection with sports bettors and sports fans and might be more effective for Penn's sports betting strategy than Barstool Sportsbook ever was. Despite Barstool's significant market recognition, the company wasn't able to convert enough "Stoolies" to its sports betting platform. Nevertheless, certain analysts have concerns about Penn and ESPN Bet's ability to compete in the highly competitive U.S. sports betting market.
Although this deal symbolizes a potential groundbreaking moment for both Penn and ESPN, there are doubts about ESPN Bet's potential to bring a significant challenge to the market dominance of Flutter Entertainment's (OTC: PDYPY) FanDuel and DraftKings (NASDAQ: DKNG), as these two operators dominate the American sports betting market with over two-thirds of the market share.
Though CEO Tim Snowden of Penn appeared hopeful that ESPN Bet could help improve the company's market share at a recent investor conference, some analysts still have reservations about the new sportsbook's potential.
The Expected Launch of ESPN Bet
ESPN Bet is yet to launch officially, but the company is expected to have it up and running by November. By then, they'll be able to capture most of the NFL season's tail-end and a significant portion of the NBA season. Santarelli expressed optimism that the brand might make some online sports betting (OSB) and gross gaming revenue (GGR) progress.
"We expect the launch to drive healthy handle and GGR OSB market share gains while also attracting unprecedented attention from mainstream financial media outlets," Santarelli said in his report. However, he added that the long-term success of customer acquisition spending would remain unclear until 2023, and the initial responsibilities might fall on the bear share until the brand starts to see significant market share gains in November and December.
Further insights into the early projections and performance of the ESPN deal could be provided during an analyst day in the following month and an investor day in December.
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