Return on investment (ROI) from Penn Entertainment’s interactive operations will get worse before it gets better. That’s the thesis of a J.P. Morgan investment update released this morning.
Without elaborating on the reasons, senior analyst Joseph Greff tripled his projection of negative ROI from $2.5 million in the second and third quarters of the year to $7.5 million in each.
However, he also almost tripled his expectation for positive ROI in the fourth quarter of 2023, taking it from $13 million to $38 million. For the full year, this moves the interactive-ROI target from $3 million to $17.3 million.
Looking ahead to 2024, Greff anticipates positive digital ROI of $41.6 million. Despite this good news, Greff didn’t budge from his $28 price target for a stock currently trading at $26.08 a share. He also maintained a “Neutral” rating on Penn shares.
In explaining his rating, Greff said, “We do not see a catalyst to expand the multiple and see the risk-reward in the stock as balanced. We see better value elsewhere in our coverage universe.”
Of all Penn’s divisions, Interactive has the lowest valuation in J.P. Morgan’s outlook, five times cash flow.
