On Friday, Penn National Gaming (NASDAQ:PENN) stock received an upgrade from a Craig-Hallum analyst, shifting from a Hold to a Buy rating, accompanied by a new price target set at $30.00. The firm recognizes the intrinsic value of Penn National Gaming's assets and sees current market conditions as an opportunity for investors.
The analyst's perspective is that despite previous concerns about the company's capital allocation and its performance in the Interactive segment, Penn National Gaming still possesses valuable assets that could lead to significant stock upside.
The low investor sentiment and the stock's industry-low valuation multiple, contrasted with its leading retail casinos and online structural advantages, were cited as reasons for the upgrade.
The analyst also pointed to the recent involvement of activists and rumors of mergers and acquisitions as factors that could provide a valuation floor for the company. The retail casino assets alone are deemed to be worth $30 per share, with an additional $15 per share potential from either successful mergers and acquisitions or from the company's partnership with ESPN Bet.
Looking ahead, there are several potential fundamental catalysts for Penn National Gaming. These include improvements and integrations with ESPN Bet, the completion of four retail growth projects in 2024 and 2025 that are expected to significantly reduce capital expenditures in 2026, and the anticipation of the company generating over $1 billion in free cash flow in 2026.
This upgrade comes as a positive note for the company, which had previously seen a downgrade by the same firm on August 10, 2023, due to performance issues in its Interactive division. At that time, the S&P index had risen by 22% in contrast to Penn National Gaming's 26% decline.
In other recent news, Penn National Gaming has seen a series of analyst adjustments following its recent performance. Truist Securities increased their price target to $25, citing an upward trend in the company's land-based Gross Gaming Revenue (GGR). However, due to the uncertainty of June figures, Truist Securities slightly lowered its second-quarter EBITDAR estimates by 1%.
Raymond James initiated coverage on Penn National Gaming with an Outperform rating and a share price target of $20.00, despite acknowledging challenges within the company's digital and land-based operations.
Meanwhile, Stifel maintained its Hold rating and $19.00 stock price target, highlighting investor concerns about increasing losses in Penn National Gaming's Interactive segment.
Needham also maintained its Buy rating and a $26.00 price target for Penn National Gaming, highlighting the company's successful collaboration with ESPN and technological strides.
However, BofA Securities downgraded the company from Buy to Neutral and reduced the price target to $17.50 following the company's first-quarter results, which fell short of expectations. These recent developments offer investors a diverse range of perspectives on the company's future performance.
InvestingPro Insights
The recent upgrade of Penn National Gaming (NASDAQ:PENN) by Craig-Hallum signals a shift in market perception, potentially aligning with some of the metrics observed on InvestingPro. With a market capitalization of $2.99 billion, Penn National Gaming's financial stature is considerable, though it operates with a significant debt burden which is a critical factor for investors to monitor. The company's stock has experienced significant return over the last week, with a 15.17% price total return, and an even stronger return over the last month at 22.12%, reflecting a potential rebound in investor confidence.
InvestingPro Tips highlight that Penn National Gaming has high shareholder yield and notable stock price volatility. While analysts do not anticipate the company will be profitable this year, and it has not been profitable over the last twelve months, these tips could be essential for investors considering the timing of their investment decisions. Additionally, Penn National Gaming is trading at a high EBITDA valuation multiple, suggesting the market has high expectations for its future earnings before interest, taxes, depreciation, and amortization.
For those looking to delve deeper into Penn National Gaming's financials and future prospects, InvestingPro offers additional tips and metrics. By using the coupon code PRONEWS24, readers can get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, gaining access to valuable insights that could guide investment decisions. There are 7 more InvestingPro Tips available for Penn National Gaming at https://www.investing.com/pro/PENN, providing a comprehensive view of the company's financial health and market potential.
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