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Needham has reiterated its Buy rating on PENN Entertainment Inc (NASDAQ: PENN) with a steady price target of $26.00.
The firm's positive stance comes after an investor event held by PENN in conjunction with the G2E conference.
The event highlighted a year-over-year improvement in the company's parlay mix, which has resulted in a higher hold percentage, a measure of the amount of wagers kept by the bookmaker.
The improvement in PENN's parlay mix is attributed to recent product updates that have allowed the company to catch up with other operators in the industry. Needham also noted PENN's strong performance in Ontario, which points to a greater potential upside. This success is seen as a result of the growing convergence of sports betting and sports media.
Regarding PENN's financial outlook, Needham's analysis suggests that the company's messaging for its 2025 Interactive EBITDA (earnings before interest, taxes, depreciation, and amortization) is more optimistic than the consensus but slightly less than Needham's own estimates. For 2026, the firm believes PENN's projected Interactive EBITDA aligns with its expectations.
The preliminary results for the third quarter were described as roughly neutral. PENN reported numbers below consensus estimates for property-level EBITDAR but surpassed expectations in terms of interactive EBITDA, balancing the overall performance.
In other recent news, PENN Entertainment Inc has seen significant developments in its operations. The company reported a record quarter for net gaming revenue in its Interactive segment, with Q2 retail revenue of $1.4 billion and an adjusted EBITDAR of $497 million.
Also, the Interactive division, live in 19 jurisdictions with nearly 4 million unique users, reported a reduced quarter-over-quarter loss. PENN plans to launch a standalone iCasino app by early 2025 and aims to generate positive cash flow from the Interactive unit by 2026.
Several analyst firms have weighed in on PENN's performance. Truist Securities reiterated a Buy rating with a $25.00 price target, while Deutsche Bank and Stifel maintained Hold ratings with a $20.00 target. Barclays reaffirmed an Overweight rating, maintaining a $23.00 price target.
Despite facing some challenges, PENN's management reassured that consumer health remains stable. The company's future strategies emphasize the development of ESPN Bet and the Interactive division, which are expected to become significant EBITDA contributors in the coming years.
InvestingPro Insights
To complement Needham's analysis, recent data from InvestingPro sheds additional light on PENN Entertainment's financial situation. The company's market capitalization stands at $2.78 billion, reflecting its significant presence in the gaming industry. However, PENN's financial health presents a mixed picture.
InvestingPro Tips highlight that PENN operates with a significant debt burden, which could impact its financial flexibility. This aligns with Needham's focus on EBITDA projections, as managing debt obligations will be crucial for the company's future performance. Additionally, PENN's stock price movements are noted to be quite volatile, which investors should consider when evaluating Needham's $26.00 price target.
On a positive note, InvestingPro data shows that PENN's revenue for the last twelve months as of Q2 2024 was $6.28 billion, with a gross profit margin of 38.54%. These figures provide context to Needham's observations about the company's improving parlay mix and hold percentage.
It's worth noting that InvestingPro offers 7 additional tips for PENN, which could provide further insights into the company's financial outlook and market position. Investors looking for a more comprehensive analysis may find these additional tips valuable in their decision-making process.
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