Penn Entertainment Stock Soars on ESPN Bet Enthusiasm

Posted on: November 20, 2023, 02:38h. 

Last updated on: November 20, 2023, 03:03h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Penn Entertainment (NASDAQ: PENN) ranked as one of Monday’s best-performing gaming stocks amid enthusiasm for the newly launched ESPN Bet mobile sports wagering application.

ESPN Bet Penn Entertainment sports betting
The ESPN Bet logo. Shares of Penn Entertainment surged Monday after an analyst upgraded the stock due to ESPN Bet enthusiasm. (Image: ESPN Bet)

The regional casino operator launched ESPN Bet in 17 states on November 15 with its new iGaming brand, Hollywood Casino, making its debut in Michigan, New Jersey, Pennsylvania, and West Virginia on the same day. Data indicate bettors are, at the very least, kicking the tires on the new offering from Penn.

ESPN Bet is dominating initial download activity and charts, proving it is cutting through to customers. ESPN Bet has been #1 or #2 of all free apps on the iOS store since last Tuesday, with 865K cumulative downloads and a 4.8 app store rating, even without data from NFL Sunday,” wrote Bank of America analyst Shaun Kelley in a note to clients.

He upgraded Penn to “buy” from “neutral” while lifting his price target to $30 from $27, contributing to today’s pop in the shares. In late trading, Penn stock is higher by 7.33% on volume that’s well above the daily average.

ESPN Bet Could Be Winner for Network, Penn

After several years of failing to attach its venerable brand to a sports wagering outfit, ESPN announced in August that it was teaming up with Penn to create ESPN Bet. As part of that agreement, Penn is paying ESPN parent Walt Disney (NYSE: DIS) $1.5 billion over 10 years.

Penn is also granting ESPN $500 million in warrants that allow the network to buy approximately 31.8 million shares in the casino company, vesting ratably over 10 years, meaning Disney is somewhat levered to increases and declines by the regional casino operator’s stock.

Reportedly, Penn wasn’t ESPN’s first choice, nor its second, in terms of gaming companies to work with. However, the casino operator’s financial offer coupled with the network’s need to be more directly involved in sports wagering may have sealed the deal. Moving forward, it’s possible the pact could benefit both sides.

“We think ESPN Bet creates an asymmetric risk-reward, with 1) initial download and app activity much stronger than anticipated, 2) initial offers showing promotional discipline, and 3) stable Q3 earnings being better than expected for PENN’s core gaming business,” added Kelley.

More to Penn Stock Story

Since January 2020, when it acquired a 36% stake in David Portnoy’s Barstool Sports, many investors have viewed Penn as an online gaming company. With that, following a torrid run in 2020, the stock disappointed as it failed to rival FanDuel and DraftKings (NASDAQ: DKNG) in terms of online sports betting market share.

Regional casinos remain the primary drivers of Penn’s earnings and revenue and that may be an underappreciated trait at a time when the operator is less exposed to competitive pressures in markets such as Atlantic City, NJ, Chicago, and Tunica, Miss.

Bank of America’s Kelley observed Penn is cutting costs and because its margins didn’t rapidly expand soon after COVID-19, there’s less room for margin disappointment.