Wall Street Bets: Virginia/Churchill Downs, Inspired Entertainment, Penn Entertainment 

April 16, 2024 12:58 PM
Photo: CDC Gaming Reports
  • Rege Behe, CDC Gaming Reports
April 16, 2024 12:58 PM
  • Rege Behe, CDC Gaming Reports

Wall Street Bets is a roundup of recent notes from analysts covering the gambling industry. 

Virginia/Churchill Downs 

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On April 14, Jefferies analyst David Katz issued a statement about Virginia’s proposed skill-games amendment, noting that Gov. Glenn Youngkin is seeking tighter regulations on gray market machines. “The suggested changes to the bill removing the 2021 ban include capping the number of machines allowed statewide at 20,000; granting communities the power to ban gray games on a local level; prohibiting the games within 35 miles of casinos and horse racing facilities/tracks; and delaying legalization,” Katz wrote. “This is positive for Churchill Downs; the risk to its historical horse racing machine facilities is much more benign than initially expected, in our view.” 

 Inspired Entertainment 

Inspired Entertainment drew recent interest from Wall Street analysts, with Truist Securities’s analyst Barry Jonas writing the company’s “reporting appears to be back on track, though there’s the matter of a new SEC investigation (as per the 10-K) presumably to verify the matter has been resolved appropriately. From a fundamental perspective, management sees a stronger 2H24 fueling year-over-year growth for the portfolio, and INSE’s innovative product offerings position the company for continued digital growth. We lower ’24E EBITDA -2% on new product ramp timing, and introduce 2025 estimates. Following the stock’s pull back today, valuation looks increasingly attractive. Maintain $13 PT and remain Buy-rated.” 

In a report, analyst David Bain of B Riley Securities wrote that Inspired Entertainment’s “4Q23E outperformance was driven by its gaming segment, while digital components were slightly below our forecast. Digital margins were slightly lower than previous quarters as Inspired prepares for a wider launch of content, most notably its hybrid dealer concept. While virtual sports EBITDA declined for the second consecutive quarter, management stated 4Q23 represented the trough period for virtual sports. Inspired also outlined several BH digital and gaming catalysts. Notably, digital BH24E EBITDA also offers CY25E visibility. Finally, while Inspired captures year-over-year growth in BH24E and CY24E, overall, we believe certain assumptions, including its wider hybrid dealer rollout and gaming machine orders into Western Canada position potential upside versus our BH estimates.” 

Penn Entertainment 

In a April 16 statement, J.P. Morgan analyst Joseph Greff stated that the company is “raising our 1Q24 land-based casino EBITDAR estimates, with higher Midwest segment results offsetting modestly softer projections in its South segment” for Penn Entertainment.  “We are also increasing our forecasted 1Q24 digital losses due to a low online sports betting hold (whose impact is greater than other, larger OSB operators given ESPN BET’s relatively lower parlay mix versus peers). 

“Specifically, our 1Q24 Property EBITDAR estimate goes to $481 million, up from our $478 million previously and slightly above the Street’s $480 million. We estimate PENN’s reported regional GGR was flat year-over-year in both February and March, while down ~13% in January, reflective of harsh weather across the country. Our 1Q24 digital EBITDA loss goes to $187 million, versus our prior $167 million, and the Street’s $175 million. Net-net, our 1Q24 EBITDAR (after corporate expenses) goes to $267 million, from $284 million previously and sits below the Street’s $281 million. Our 2024 and 2025 EBITDA estimates are largely unchanged.”