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Penn Entertainment Hit Valuation-Inspired Downgrade

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Posted on: April 17, 2023, 01:15h. 

Final up to date on: April 18, 2023, 12:33h.

Shares of Penn Leisure (NASDAQ: PENN) traded decrease Monday after an analyst downgraded the inventory, noting it’s pretty valued at present ranges.

Penn activist
A slide from a Penn Leisure investor presentation. An analyst downgraded the shares on Monday, citing valuation considerations. (Picture: Penn Leisure)

In a be aware to shoppers on Monday, JMP Securities analyst Jordan Bender downgraded shares of the regional on line casino operator to “market carry out” from “market outperform,” mentioning the inventory is “pretty valued” following a prolonged run of lagging its peer group. Penn inventory is down 4.33% 12 months so far and misplaced 1 / 4 of its worth over the previous 12 months.

Buying and selling at 6.3x earnings earlier than curiosity, taxes, depreciation, and amortization (EBITDA)/11% free money movement, we discover shares of pretty valued and are downgrading our score to Market Carry out from Market Outperform,” wrote Bender.

The analyst added the “risk-reward is extra favorable in different firms” in his protection universe.

Penn Leisure Pluses, Minuses

In February, Penn unveiled 2023 steering of income of $6.15 billion to $6.58 billion, and adjusted EBITDAR of $1.875 billion to $2.0 billion.

Moreover, its Barstool Sportsbook unit notched a modest revenue within the fourth quarter, one thing loads of rivals have but to perform. Whereas the inventory has struggled of late, the gaming firm is a devoted purchaser of its personal shares, and is within the midst of a $750 million repurchase plan. Nonetheless, JMP’s Bender sees some dangers tied to the title.

“The combination of the in-house know-how stack within the US shall be a optimistic step for its on-line enterprise, however is not going to be sufficient to offset the market share decline and valuation re-rate shifting ahead,” Bender noticed. “Whereas we acknowledge the underperformance within the final 12 months vs. the SP500, we discover extra enticing risk-reward in different areas of the gaming sector with progress tasks, on-line publicity, and capital return applications.”

Penn Leisure stories first-quarter earnings on Might 4. That report may embody updates on Barstool Sportsbook efficiency, amongst different tidbits that analysts and buyers extensively comply with.

Desire for Churchill Downs

As famous above, Bender sees higher threat/reward alternatives in his protection house than Penn Leisure. A type of concepts is Churchill Downs (NASDAQ: CHDN).

Simply weeks earlier than the Kentucky Derby, Bender bumped his value goal on that gaming inventory to $298 from $278 whereas reiterating an “outperform” score on the shares. The brand new value forecast implies upside of 16.4% from the April 14 shut.

Bender famous the primary quarter was a optimistic stretch for land-based gaming in North America. He sees sports activities betting within the area rising at a compound annual charge of 20% over the subsequent 5 years, with iGaming posting a compound annual progress charge of 19% over the identical interval. These are potential positives for shares of Churchill Downs.

That inventory is up 20.35% 12 months so far and resides simply 3.66% off its 52-week excessive.

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