On Tuesday, Barclays (LON:BARC) reaffirmed its Overweight rating on PENN Entertainment Inc (NASDAQ: NASDAQ:PENN), maintaining a $23.00 price target. The company recently held an investor day in Las Vegas, where it discussed its progress in the Digital sector. Barclays highlighted PENN's preliminary third-quarter Digital EBITDA, which was $30 million above guidance. This positive development was attributed to strong hold, although the firm noted that PENN's Retail preliminary results fell short by $30 million due to various disruptions.
PENN's announcement indicated that sports outcomes for September and the third quarter had a modestly positive impact on the sector, aligning with Barclays' expectations. The firm's analysis suggested that PENN's improved hold, particularly in parlay mix, was a notable step forward. However, the company still needs to increase its market share to reach break-even.
The firm also pointed out PENN's revised framework for 2026 Digital EBITDA, which now assumes profitability at lower market share projections of 6-10% by 2026, compared to the previous 10-20% by 2027. With a 10.5% hold, PENN could potentially exceed consensus estimates with a 7% market share.
Barclays was additionally optimistic about the potential for media integrations, especially regarding ESPN Fantasy and the upcoming linkage between ESPN BET and the ESPN app. This integration, set for November, will enable bettors to track their wagers made on ESPN BET directly within the ESPN app, which is seen as a crucial aspect of the overall integration story.
In other recent news, PENN Entertainment has unveiled its Q2 2024 results, revealing a record quarter for net gaming revenue in its Interactive segment and steady performance amid new competition and a challenging macroeconomic environment. The company introduced its new Chief Technology Officer Aaron LaBerge, who outlined plans for product enhancements and market expansion. PENN's Q2 retail revenue was $1.4 billion, with an adjusted EBITDAR of $497 million.
The company's Interactive division, which is live in 19 jurisdictions with nearly 4 million unique users, has also seen a narrowed quarter-over-quarter loss. PENN has plans to introduce a standalone iCasino app by early 2025 and aims to generate positive cash flow from the Interactive unit by 2026.
Despite concerns about the macroeconomic environment and a high tax rate in New York, PENN has reported stable performance across its customer base and successful market share growth in Ohio, Maryland, and Iowa. The company is also optimistic about the future of its digital brands and continues to focus on its partnership with ESPN.
InvestingPro Insights
To complement Barclays' analysis of PENN Entertainment Inc (NASDAQ: PENN), recent data from InvestingPro provides additional context for investors. PENN's market capitalization stands at $2.78 billion, reflecting its significant presence in the gaming industry. The company's revenue for the last twelve months as of Q2 2024 was $6.28 billion, although it experienced a revenue decline of 4.18% during this period.
InvestingPro Tips highlight that PENN operates with a significant debt burden, which could impact its financial flexibility as it pursues growth in the Digital sector. Additionally, the stock's price movements are quite volatile, which aligns with the dynamic nature of the gaming and sports betting markets PENN operates in.
Interestingly, while Barclays maintains an Overweight rating, InvestingPro Tips indicate that analysts do not anticipate the company will be profitable this year. This perspective adds nuance to the discussion of PENN's Digital EBITDA projections and the revised framework for 2026.
For investors seeking a more comprehensive analysis, InvestingPro offers 5 additional tips that could provide further insights into PENN's financial health and market position.
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