On Friday, CFRA analyst Zachary Warring adjusted the price target for Penn National Gaming (NASDAQ:PENN), listed on NASDAQ:PENN shares, raising it to $24.00 from the previous $16.00. The firm retains a Buy rating on the stock. The revision reflects a valuation pegged at 5.9 times the firm's 2024 EBITDA estimate.
This multiple is lower than Penn National's historical average forward EV/EBITDA multiple of 8.3 times. The new target accounts for increased investment in the company's digital segment and a challenging macroeconomic environment in the U.S.
In the first quarter, Penn National reported a normalized EPS of ($0.79), which fell short of consensus estimates by $0.27, and revenue of $1.61 billion, missing estimates by $23 million.
The company saw varied performance across different regions, with the Northeast experiencing a 2% year-over-year revenue decline, the South down by 5%, the West remaining flat, the Midwest decreasing by 1%, and the Interactive segment dropping by 11%.
The Interactive segment's adjusted EBITDAR was notably lower at ($196M) compared to ($6M) in the previous year, as the company increased spending to gain market share for its ESPN BET app.
Warring has also revised the EPS estimates for the next two years, lowering the 2024 and 2025 forecasts from $2.00 to $1.00 and from $1.25 to $1.00, respectively. Despite the downward adjustment in earnings projections, CFRA believes that the stock is currently undervalued.
The firm is optimistic about the strategic investments Penn National is making in its interactive segment and anticipates that the ESPN BET app will secure a larger market share in the coming three years.
InvestingPro Insights
As Penn National Gaming (NASDAQ:PENN) navigates a challenging market, real-time data from InvestingPro provides further context to the company's current financial health. With a market capitalization of approximately $2.29 billion, the company's valuation reflects investor sentiment influenced by recent performance metrics. Notably, Penn National's price-to-earnings (P/E) ratio stands at a negative -2.23, and when adjusted for the last twelve months as of Q1 2024, it deepens to -8.39, indicating the company's earnings struggles.
InvestingPro Tips highlight that management's aggressive share buybacks could be a strategic move to bolster shareholder value amidst the stock's significant price decline over the past year, with a 50.18% downturn. Despite these efforts, analysts are not optimistic about profitability in the near term, with two analysts revising their earnings downwards for the upcoming period and concerns that the company will not be profitable this year. The stock's performance has also been impacted, with substantial hits over the last week, month, and six months.
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