Deutsche Bank analyst Carlo Santarelli lowered his price target on Penn Entertainment stock Monday, dropping it to $19 per share from $22, while keeping his rating at “Neutral.” The stock ended the trading day at $16.28, down 2.51 percent.
Santarelli cited larger-than-anticipated losses in Penn’s online operations as the reason for the downgrade. Low online sports betting hold was pegged as the culprit.
The analyst pointed to ESPN Bet’s mix of parlay and straight bets, lower on the parlay side than the competition’s. Where Santarelli had modeled a $167 million first-quarter digital loss for Penn, he widened it to $187 million of red ink.
Some brighter news was found on the brick-and-mortar front, where strength in the Midwest was said to be offsetting softness at Penn’s Dixie casinos. Revenue from Penn’s regional casinos was reported as being flat in February and March after plummeting 13 percent in January, due to very inclement weather.
Santarelli raised his cash-flow projection for Penn’s casino portfolio to $481 million, up from $478 million for the quarter. Cash-flow forecasts for the entire company, however, slimmed to $267 million from $284 million.
Santarelli saw Penn standing or falling on ESPN Bet for now. “While the multi-year underperformance of the shares has us intrigued, we are (still) adopting a wait and see approach on ESPN BET, which is likely the biggest driver of the stock for the foreseeable future.”
Penn’s terrestrial casinos were described as stable performers and the eventual beneficiaries of a 2024-2025 program of upgrades and maintenance. This includes new hotel towers at M Resort and Hollywood Columbus, as well as new casinos at Hollywood Joliet and Hollywood Aurora.
