Analysts upgrade sports betting and casino operator pen entertainment (NASDAQ:PENN) Sportsbook Based on ratings from ESPN Bet.
PENN analysts said: Trust analyst Barry Jonas upgraded Penn Entertainment from hold to buy, with a price target of $23.
Analyst points: Penn Entertainment launched ESPN Bet in November 2023 through a licensing agreement with ESPN owners walt disney company (NYSE:DIS).
Related Links: NFL Draft Takes Detroit – Event for Sports Fans, Kids and Newcomers to the Motor City
Jonas believes Penn stock is trading without the value assigned to ESPNBET in aggregate calculations.
“At current trading levels, we believe the value of ESPNBET will be effectively zero to negative, so we are upgrading Penn to Buy based primarily on risk and reward,” Jonas said.
The same analyst had previously downgraded the stock to August 2023, citing risks to the start schedule for competition with ESPN Bet.
“At this point, we believe expectations are too low and assume the market is not only too bearish on ESPN Bets, but there is no value in PENN's other profitable interactive businesses.”
The analyst said first-quarter results to be announced on May 2 could exceed current low expectations.
Jonas said the sum of the parts does not mean the value of ESPN Bet or Interactive.
“Interactive is more than ESPN Bet. What we think is missing in the market is that PENN Interactive is comprised of multiple businesses, not just ESPN Bet. “We still believe there is value in interactivity for Penn,” he wrote. .
The analyst said Pennsylvania has valuable online licenses thanks to land-based casinos. This could result in recurring skin fees worth $50 million to $70 million from other sportsbooks, he added.
The company's iGaming business also has a different cost structure, so it could be profitable on a smaller scale, analysts said.
Analysts also see some upside from current conditions for ESPN Bet and the Interactive sector.
“On a cash handle share basis, ESPN Bet has remained a top-four player with ~8% since its inception.”
That puts ESPN Bet behind FanDuel, DraftKings and BetMGM, but ahead of other operators like Caesars Sportsbook, analysts said.
Pen price action: Penn stock rose 2% to $17.26 on Tuesday. The stock's 52-week trading range is $15.88-$31.63. Penn stock has fallen 41.7% over the past year.
Read next: Penn Entertainment Analyst Says ESPN Bet Sportsbook Early: 'Building a Business Takes Time and Money'