Deutsche Bank is projecting no change in the value of Penn Entertainment shares in 2025, issuing a Hold rating and noting the challenges of ESPN Bet.
“While challenging, given the trajectory to date and the market expectation that Interactive losses minimize materially in 2025, improvements in 2025 will be a core focus again for investors,” according to analyst Carlo Santarelli. “In 2024, ESPN Bet added enhancements to its offerings, added player prop market depth, completed the account linking between ESPN and ESPN Bet, and added to the aesthetics of the app. Accordingly, we believe the product, from an ability to compete perspective, is broadly where it needs to be heading into 2025 to play catch up to peers. Most within the investment community view the prospects for success as low and as such, even a modicum of momentum could catalyze shares. Should improvement not materialize, strategic alternatives become the prevailing narrative.”
As for brick-and-mortar operations, Santarelli expects the fundamentals to remain challenged for Penn in 2025, citing competition, uninspiring same-store trends, and disruptions weighing on performance.
As Deutsche looks ahead to 2026, they see competitive threats further waning and solid returns from the four development projects currently underway.
While many elements to the Penn story relate to the business fundamentals, Santarelli thinks the investor mindset is likely to shift to 2026, a presumed growth year, at some point in the second half of 2025, which likely serves as a positive for Penn shares.
“Unfortunately, while we can all grind over ESPN Bet handle and monthly regional gaming revenue on a property-by-property basis until the cows come home, it is highly likely that Penn shares in 2025 outperform or underperform based on strategic actions, or lack thereof,” Santarelli said. “It is widely known that some activist holders emerged in 2024 and there is likely to be more forthcoming from these parties in 2025. What we struggle with is the simple question of what should be done differently.”
Santarelli cited potential alternatives that can unlock the value, each of which have pitfalls.
While a departure from the last five years, a monetization of the online sports betting business could potentially add value. The market gives little to no credit for the longer-term potential cash flows from the business and the losses continue to plague the stock, while the core business gets burdened by the net debt build.
“Given the relationship with ESPN Bet likely has safeguards in place, we see a lot of challenges with this path,” Santarelli said. “Most notable: the committed payments to ESPN Bet relative to customer acquisition to date from the relationship and how this translates to the appetite for a potential buyer. We believe monetizing the online sports betting vertical would allow for both incremental investment on the icasino side and an ability for investors to see the profitable cash flow streams stemming from the B2B and other elements of the Interactive segments.”
Given Penn’s vast asset portfolio, significant customer database, and strong free-cash-flow profile, excluding the current Interactive drag, Santarelli believes there would likely be multiple suitors should the operator opt to sell a portfolio of assets or undergo a more comprehensive sale process. Given the potential for unencumbered (by rent) growth, should the Interactive segment prove successful, a likely wide bid/ask spread would exist in this scenario. As the year progresses, more clarity on this front is likely to emerge, he added.
Penn stock traded just under $20 to close 2024, and Santarelli said their price target is $18.
