On Thursday, Canaccord Genuity maintained a Buy rating on PENN Entertainment Inc (NASDAQ: PENN), with a consistent price target of $28.00. The company faced mixed results in its third-quarter earnings, with challenges affecting its land-based operations and a reduced loss in its Interactive segment. PENN's regional casinos saw steady consumer spending, but this was offset by increased competition in the Northeast, Louisiana, and Illinois, as well as disruptions from weather and ongoing hotel remodeling.
The Interactive segment, which includes the ESPN BET product, reported an approximate 7 percentage point improvement in margin sequentially. This was attributed to recent product enhancements and strong user growth leading to better monetization, alongside disciplined promotional spending. Despite a third-quarter performance exceeding expectations, PENN's fourth-quarter guidance for its retail casinos was slightly below analyst forecasts. Nevertheless, the company reaffirmed its full-year 2024 Interactive EBITDA guidance.
Management commented on the strong growth in handle but remained cautious for the fourth quarter due to unfavorable NFL outcomes that persisted into early November. However, they indicated that normalizing results in the coming weeks could offer upside potential against current expectations. PENN's long-term outlook suggests that the Interactive segment is on track to near breakeven by fiscal year 2025 and achieve significant profitability in 2026.
The upcoming launch of a standalone Hollywood iCasino app in the first quarter of 2025 is expected to enhance engagement and monetization for the company's Online Sports Betting (OSB) platform. Canaccord Genuity sees the current valuation as presenting an attractive risk/reward scenario for investors, emphasizing the potential growth from continued product improvements.
In other recent news, PENN Entertainment Inc. reported mixed third-quarter results, with earnings per share slightly surpassing analyst expectations but revenue falling short. The company recorded a loss of $0.25 per share, beating the predicted $0.26 per share loss, and revenue of $1.64 billion, missing the consensus forecast of $1.64 billion.
Truist Securities maintained a Buy rating on PENN, while Morgan Stanley (NYSE:MS) and Barclays (LON:BARC) held their Equalweight and Overweight ratings respectively. PENN's Interactive segment reported an EBITDA loss of $90.9 million, slightly better than expected, and the company revealed plans to introduce a standalone iCasino in 2025.
Despite challenges such as unfavorable hold and weather disruptions in the South, PENN's retail business demonstrated stable consumer demand. The company ended Q3 with $834 million in cash and cash equivalents. Analysts anticipate continued improvements in the Interactive segment and a stronger fourth quarter start in the retail sector.
InvestingPro Insights
Recent InvestingPro data provides additional context to PENN Entertainment's financial landscape. With a market capitalization of $3.01 billion, the company's stock has shown volatility, reflecting the challenges mentioned in the article. Despite a 3-month price total return of 11.41%, PENN's year-to-date return stands at -26.1%, underscoring the mixed performance across different timeframes.
InvestingPro Tips highlight that PENN operates with a significant debt burden, which aligns with the company's cautious outlook and the challenges faced in its land-based operations. The tip indicating that analysts do not anticipate profitability this year corroborates the article's mention of reduced losses in the Interactive segment and the path to breakeven by fiscal year 2025.
Interestingly, while the article focuses on PENN's Buy rating from Canaccord Genuity, InvestingPro data shows the stock trading at high EBIT and EBITDA valuation multiples. This suggests that investors are pricing in future growth potential, particularly from the Interactive segment and the upcoming Hollywood iCasino app launch.
For investors seeking a more comprehensive analysis, InvestingPro offers 7 additional tips that could provide deeper insights into PENN Entertainment's financial health and market position.
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