On Friday, PENN Entertainment Inc (NASDAQ: NASDAQ:PENN) experienced a significant rise, climbing over 6%, following an upgrade from JPMorgan (NYSE:JPM). The firm shifted its stance on the stock from Neutral to Overweight and raised the price target to $27.00 from the previous $19.00. This new target suggests a potential upside of over 38%, with shares having closed at $19.43 the day before.
The upgrade by JPMorgan reflects a positive outlook for PENN Entertainment's future, as the analyst highlighted a favorable risk-reward scenario. The firm anticipates a bottoming out of the company's regional land-based casino cash flow, aided by easy comparisons and a path to modest aggregate growth. This growth is expected as a result of $850 million invested in four retail growth projects that are projected to start yielding attractive returns in the second half of 2025.
The analysis also pointed to set expectations for the company's Interactive segment, which includes online sports betting and iGaming, anticipating modestly positive EBITDA generation by 2026. The report suggested that success with ESPN BET is seen as a key driver for PENN's stock, but even without significant success in the Interactive segment, the company's land-based casino operations and market access fees alone could justify a share value of $26.
JPMorgan's note also mentioned potential strategies that PENN could employ if the Interactive segment does not perform as expected, such as asset sales or mergers and acquisitions, which could support the stock's value. Furthermore, the firm expects PENN to generate significant discretionary free cash flow by 2026, enhancing the company's ability to reduce debt and interest expenses.
The assessment concluded with a positive outlook on PENN's financial metrics, noting that the company trades at attractive lease-adjusted EV/EBITDAR multiples and free cash flow yields based on 2025 and 2026 estimates. The year-end 2025 price target is derived from a sum-of-the-parts approach, assigning target multiples to the company's 2026 land-based casino forecasts and Interactive estimates.
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