UK
After a sell-side analyst stated that Penn Entertainment (NASDAQ: PENN), a regional casino operator, is unlikely to start a strategic review in the near future, shares of the firm fell Friday, possibly shattering speculation that it could be a takeover target.
When Truist analyst Barry Jonas wrote in a report that Penn is unlikely to consider a sale anytime soon, despite a letter to the board from money manager Donerail Group urging the gaming company to consider such a transaction because Penn could command double its current market capitalization in a sale, Penn fell 8.7% on Friday, on volume that was nearly 50% above the daily average.
"Despite the activist letter, we don’t think any sort of formal strategic review at PENN is likely in the near-term,” wrote Jonas.
Although Jonas may have dampened the enthusiasm for the Penn purchase, he raised his price estimate for the company from $23 to $25, which indicates a 43.6% increase from the close on June 14.
Known Refrain on the Strategic Review of Penn Entertainment
T he Donerail letter, which was delivered to Penn's board of directors on May 31, fueled gains in the long-lagging stock and some short covering, but since the letter's disclosure, analysts have virtually unanimously stated that an outright sale of Penn is improbable in the near future.
Reiterating that theme, Jonas pointed out that acquisition values might be stifled as long as loan rates remain high. Even while experts and investors have praised gaming businesses' efforts to decrease and restructure debt due to the rising interest rates brought on by ongoing inflation, share prices are being negatively impacted by these developments.
Similarly, high interest rates suggest that potential purchasers who require funding to complete transactions may be hesitant to make offers due to the increased financing and interest costs.
“We also note PENN is one of the most efficient land-based operators in our coverage, which limits any low-hanging operational synergies,” Jonas added.
Penn is committed to supporting ESPN Bet
The gambling company's well-documented mistakes in the online sports betting market were a major focus of Donerail's criticism of Penn management and the push for a sale. Nevertheless, the operator remains dedicated to its new sports-betting mobile app, ESPN Bet, which launched in November of last year.
Penn has a "clear ESPN Bet product roadmap," according to Jonas, and it might profit in the forthcoming football season. A complete football season can provide insight into ESPN Bet's long-term outlook. The app has had difficulty gaining a significant portion of the market thus far, but that is the case for almost all of its rivals who are not DraftKings or FanDuel.
Some online sportsbook operators face challenges like low hold rates, intense competition, and the threat of tax increases, but Penn has the chance to use the ESPN name and advancements in technology to attract more bettors to ESPN Bet in the 2024 football season.
