BofA Securities Reassesses Penn National Gaming
BofA Securities has revised its rating on Penn National Gaming, moving from a ‘Buy’ to a ‘Neutral’ stance, and simultaneously reduced the stock’s price target from $28.00 to $17.50.
This adjustment comes in the wake of the company’s first-quarter results which fell below analyst expectations, revealed on May 2.
Key Concerns Impacting Performance
Several factors contributed to the downgrade by BofA Securities. A primary concern is the underperformance of ESPN Bet, Penn National’s sports betting platform, which has not achieved the projected market share.
The shortfall is partly due to the platform’s high fixed costs, adding a layer of earnings risk as the company moves towards the fourth quarter of the year and into 2025.
Financial Strains and Market Risks
The analysis also pointed to “lackluster” core business trends within Penn National Gaming. Additionally, an increase in leverage on the company’s balance sheet was noted, potentially escalating the execution risk and susceptibility to market fluctuations.
The financial structure supporting ESPN Bet is expected to slow down the scaling process of the operation, further compounding the risks involved.
Originally viewed as a growth-oriented investment, Penn National Gaming is now considered by BofA Securities as a potential deep-value turnaround opportunity.
The sentiment towards Penn National Gaming has notably dampened, with concerns that the deteriorating condition of the balance sheet may require extensive time to amend.
The lowering of the price target was influenced by reduced earnings estimates, a devaluation of ESPN Bet, and a lowered core EBITDAR multiple, now positioned at 0.5x.
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