Penn Entertainment’s price target was reduced by $5 per share, from $39 to $34, by J.P. Morgan senior analyst Joseph Greff this morning. This was in spite of better than expected regional casino revenues. At the time, Penn traded at $28.47 a share.
The problem lay in 2024 cash-flow projections for igaming and online sports betting (OSB) revenue. Greff subtracted $44 million from his previously anticipated $109 million. This brings the EBITDA forecast much closer to Greff’s $25 million for this year. He explained that Penn “will likely reinvest and accelerate digital marketing spend as its peers likely ramp down such activity in 2024, and therefore PENN won’t see ‘hockey-stick’ type of growth in 2024 versus 2023.”
Greff looked forward to Penn’s first-quarter earnings call in hopes of visibility into the performance of the company’s wholly owned OSB subsidiary, Barstool Sports. He didn’t model Barstool’s operation into his price target, citing limited revenues (under $300 million) and cash flow (between $25 million and $30 million): “In any event, we think the net EBITDA impact is minimal in 2023 and not accretive to its 2023 valuation multiple.”
On the plus side, Greff ratcheted property-level cash flow for Penn casinos up to $513 million from $504 million, on account of higher than anticipated gross gaming revenues. Strong performance in Penn’s northeastern and Midwest segments compensated for weakness in the South (primarily Louisiana). The West segment, composed largely of Las Vegas’ M Resort and a racino in New Mexico, was flat, as was the interactive division.
Greff characterized his revenue projections as “undemanding.” He left those for the second quarter of this year through all of next year “largely unchanged.”
