Analysts Applaud Penn Entertainment's Strong Earnings But Are Divided On Future Prospects

Penn Entertainment Inc PENN beat earnings consensus estimates in its second quarter. However, analysts are still divided on whether the company can compete with competitors.

The Penn Analysts: The following analysts published PENN notes on Thursday.

• Benchmark analyst Mike Hickey issued a Hold rating.
• Truist analyst Barry Jonas issued a Buy rating with a price target of $25.

Main Takeaways: Hickey is bullish on the sports betting industry but not sold on Penn.

“If ESPN Bet does not reach competitiveness by the NFL season’s start, we are concerned that PENN may engage in aggressive promotional activities to boost engagement with new but potentially subpar features,” the analyst said. “This strategy would echo last year’s approach, potentially leading to excessive spending on a product that may ultimately underperform in engagement, retention, and monetization.”

Truist is not confident that the company will be competitive with in-game betting, arguing that competitors have out-innovated Penn.

“We are not convinced that ESPN Bet’s innovations will successfully drive meaningful market share increases, as these new features may not be competitive with those of the current market leaders and player trends,” Hichkey added.

Jonas is long on Penn given its progress outside of ESPN Bet.

“Following our recent upgrade, we reiterate that better days seem to be ahead for PENN given its vision for Interactive is approaching reality with real unrecognized value outside of ESPN Bet,” his note reads.

The analyst also commented on management’s denial to comment on potential mergers and acquisitions.

“With regards to recent M&A speculation, mgmt reiterated it has always evaluated opportunities to enhance value with the shareholders’ best interests in mind though expressed confidence in its strategy and ability to drive shareholder value going forward. We take mgmt’s limited commentary to minimally highlight the strong positioning of its landlord GLPI [Gaming and Leisure Properties Inc].”

Price Action: Penn shares rose nearly 10% on Thursday but shed a small portion of its gains on Friday. The stock is trading at $18.61, down 0.59% at the time of writing.

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