On Thursday, Stifel analyst Steven Wieczynski reduced the stock price target for Penn National Gaming (NASDAQ:PENN), traded on NASDAQ:PENN, to $19 from the previous $23, while retaining a Hold rating on the stock. The adjustment follows a pattern of under performance by the company, which has led to growing investor dissatisfaction and concerns over the company's credibility.
Penn National Gaming has faced a series of setbacks that have eroded investor confidence. Wieczynski pointed out that long-standing promises of profitability have yet to materialize, particularly with the company's Interactive segment.
Projects like Barstool, theScore, and the recent ESPN BET initiative have not delivered the expected returns, leading to a shift in investor sentiment. The analyst indicated that the Interactive losses are now anticipated to surpass previous estimates for the current year.
The projection for Penn National to reach a break-even point by 2025 is now in doubt, according to Wieczynski. This skepticism is fueled by statements regarding sustained high investment levels, which cast further uncertainty on the company's path to profitability.
Despite the perceived undervaluation of Penn National's core brick-and-mortar (B&M) assets, the analyst suggests that investors may refrain from re-engaging with the stock until there is greater clarity and confidence in the Interactive business's profitability.
Wieczynski's revised stock price target of $19 is based on a 2025 estimated sum-of-the-parts (SOTP) valuation. The lowered target reflects the challenges Penn National faces in convincing investors of its long-term potential, especially in the Interactive segment.
The company's struggle to meet expectations has become a central issue for investors, as they consider redirecting their investments in the face of continued disappointments.
InvestingPro Insights
In light of the challenges facing Penn National Gaming, real-time data from InvestingPro provides additional context to the company's current market position. As of the last twelve months ending in Q4 2023, Penn National has a market capitalization of $2.29 billion, reflecting the scale of the company amidst its struggles. Still, the company's negative P/E ratio of -4.65 indicates that it is not currently generating a profit, a concern that mirrors analyst skepticism about the company's near-term profitability.
InvestingPro Tips draw attention to two critical aspects: the aggressive share buyback program by management, which could indicate a belief in the company's undervalued stock, and the stock's volatility, which has been exemplified by a significant price drop of nearly 24% in the last three months. This volatility and price decline are important for investors to consider, especially those looking for stability or immediate returns.
On the positive side, the company's gross profit margin remains strong at 43.52%, suggesting that despite revenue challenges, Penn National is maintaining a solid grip on cost control in its operations. Nevertheless, the company's path to profitability remains uncertain, as it has not been profitable over the past year and analysts do not expect it to be profitable this year either.
For those interested in a deeper analysis, InvestingPro offers additional insights and metrics. To explore further and make more informed investment decisions, readers can take advantage of a special offer using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. There are 7 additional InvestingPro Tips available for Penn National Gaming that can provide a more comprehensive understanding of the company's financial health and market prospects.
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