ESPN is dealing a heavy blow to Penn Entertainment stock, analysts say
Mobile sports betting app ESPN Bet, which launched last November, is forecasting a bigger-than-expected first-quarter loss, sending shares of parent company Penn Entertainment (NASDAQ: PENN ) sharply higher.
That's the view of Deutsche Bank analyst Carlo Santarelli, who lowered his price target on the stock to $19 from $22 in a note to clients on Monday while maintaining a "neutral" rating. The price forecast represents a 14.8% upside from today’s closing price, well below the Wall Street consensus forecast of $26.51.
"While we're curious about the stock's multi-year underperformance, we (remain) taking a wait-and-see approach on ESPN BET, which may be the stock's biggest driver for the foreseeable future," the analyst wrote. .
Citing a downturn in sports betting, Santarelli said Penn's digital arm expects to lose $187 million, up from its original forecast of $167 million. The Pennsylvania-based regional casino operator is scheduled to report January-March results on Thursday, May 2. Analysts expected Penn to post a loss of 58 cents per share on quarterly revenue of $1.66 billion. Over the past 90 days, nine analysts have lowered their earnings per share (EPS) estimates for the gaming company, while none have raised their estimates accordingly.
There is a problem with parlay on ESPN bets
While Penn's core competency is operating regional casinos, the high price the bookmaker pays Walt Disney (NYSE: DIS ) for "ESPN" brand royalties has investors taking a closer look at the sports betting site to understand the purpose of this site. Take a closer look at the business.
ESPN Bet expects Penn State to lose money for much of the year, which is one reason the stock fell 17.75% last month, a loss that has doubled since the start of 2024.
Santarelli noted in the report that ESPN Bet's betting caused panic in its infancy. Over time, operators may resolve these issues. It may be questionable how patient investors are with Penn on this front, as competitors like DraftKings (NASDAQ: DKNG ) and Flutter Entertainment's FanDuel (NYSE: FLUT ) are proving to have a leg up in the betting space. Ability performer.
Across the industry, parlays, even parlays with the same game variant, are seen as profit enablers and profit drivers, meaning major operators are taking advantage of these opportunities.
Some Optimism for Pennsylvania Area Casinos
Santarelli noted that like other area casino companies, Penn State casinos were impacted by severe weather in the U.S. in January, but revenue was flat in February and March after declining in the first month of the year.
Likewise, analysts highlighted some strengths at Penn's Midwestern venues, which provide some buffer against weakness at some of the operator's casino hotels in the South.
Santarelli added that the M Resort in Henderson, Nevada, as well as Hollywood, Columbus and two Penn casinos in Illinois could benefit from the company's modernization cycle, which is expected to last until 2025.
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Source: www.casino.org
