Penn Entertainment Focuses On 'Where The Puck Has Been Rather Than Where It's Going': 5 Analysts Size Up Q1 Results, Sports Betting Segment

Casino and sports betting company PENN Entertainment PENN reported first-quarter financial results that came in lower than analysts' estimates.

Here's what analysts are saying after the report.

• Needham analyst Bernie McTernan has a Buy rating and lowers the price target from $32 to $26.
• JMP Securities analyst Jordan Bender has a Market Perform rating and no price target.
• Mizuho analyst Ben Chaiken has a Buy rating and raises the price target from $29 to $32.
• Truist analyst Barry Jonas has a Buy rating and $23 price target.
• Benchmark analyst Mike Hickey has a Hold rating and no price target.

Needham: The Interactive segment hurt first quarter results, McTernan said.

"Management is hopeful customer monetization will improve in the upcoming football season as they expect to benefit from continued product development including greater integration with ESPN, which should be further helped by the recent hire of Disney veteran Aaron LaBerge as CTO," McTernan said.

The analyst said he is "positively biased to the risk reward in shares."

Penn saw lower spending per customer and hold rates for ESPN Bet than expected in the quarter.

"This indicates either ESPN Bet's customers are more casual vs. the industry or ESPN Bet is a secondary app for consumers."

Related Link: Penn Entertainment Upgraded After Analyst Challenges ESPN Bet’s Zero Valuation

JMP Securities: The interactive segment weighed down PENN's results and more losses could be ahead, Bender said.

"The outlook for PENN Entertainment's interactive division now incorporates a higher level of losses," Bender said. "We remain hesitant on the stock as the losses for the online business continue to balloon for a company already with high leverage."

The analyst said mid-to-high single-digit market share in North Carolina in April and gaming margins for the month could lead to a gain in online sports betting market share for the month.

Mizuho: While others are fearful after Q1 results, Penn gets a raised price target by Chaiken with the analyst saying the results were stronger than they appear.

"We believe the weakness in the stock is a reflection of a disconnect in expectations, as well as miscommunication regarding underlying trends," Chaiken said.

Penn's retail segment is strong and investors could be overreacting to the weather impact in the first quarter and seasonality, he adds.

Chaiken says the Interactive segment is undervalued. The recent CTO hire and product improvements are coming ahead of the next NFL season.

"While Interactive estimates move lower, there is arguably zero/negative value priced into the stock."

Truist: The Interactive segment caused a sell-off in shares, Jonas said.

The analyst said the Buy thesis holds.

"An ESPN Bet success could drive material upside, but we think there is real unrecognized value in Interactive even outside of ESPN Bet," Jonas said.

The analyst said ESPN Bet metrics could improve with the new NFL season as the product is improved. The company also said it expects to see higher betting amounts and frequency when it expands its parlay offerings.

Benchmark: Hickey said the hail mary for Penn is overhauling the ESPN Bet platform before the next NFL season.

"ESPN Bet has performed poorly with its offerings in parlays, same-game parlays, and player props, lagging market leaders," Hickey said.

Penn’s commitment to enhancing the ESPN Bet platform might come with high spending and underperforming monetization. "We are concerned about the platform's potential lack of product excellence in in-play betting, a key focus area for product innovation from leading operators, he said."

Using a sports analogy, the analyst says "ESPN Bet is focusing on where the puck has been rather than anticipating where it is going."

"We hold an optimistic outlook regarding ESPN Bet's ability to secure over 10% of the OSB market."

The analyst said reaching this level of success will require more capital investment and could lead to downside for the stock.

PENN Price Action: Penn shares are up 0.83% to $15.12 on Friday versus a 52-week trading range of $13.50 to $29.38. Penn shares are down 50% over the last year.

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