Deutsche Bank Bullish on Penn National Gaming in Short Term
In a surprising turn of events, Deutsche Bank has expressed optimism for Penn National Gaming in the short term, despite being skeptical about its long-term prospects. Analyst Carlo Santarelli has given the sports betting company a catalyst call buy rating, also known as a short-term buy rating, under its trading name PENN Entertainment. Santarelli has maintained his hold rating and a price target of $29 for the shares, which suggests a potential rally of over 35% from Wednesday’s closing price.
The news has already had a positive impact on the stock, with shares rising by nearly 5% in premarket trading on Thursday. Santarelli explained his rationale, stating, “Over the medium to longer term, we believe the risk-reward dynamic, at current levels in shares, is fairly balanced, given the ambiguity around the success of the ESPNBet strategic pivot. However, over the near term, we believe a catalyst stack of events, coupled with an inexpensive valuation, relatively elevated short interest and limited investor interest on the long side, create a favorable setup for shares.”
One of the key factors contributing to this optimism is Penn National Gaming’s licensing deal with ESPN. In August, the company signed an agreement to rebrand its sportsbook as ESPN BET, set to launch in November. This deal grants Penn exclusive rights to the ESPN BET trademark in the U.S. for 10 years, with the possibility of extension. Santarelli expects this launch to drive significant attention from mainstream financial media outlets and result in healthy handle and GGR OSB market share gains.
While there may be some uncertainty surrounding customer acquisition spend in the long term, Santarelli believes that the burden will initially fall on the Bear during the early stages of market share gains. As a result, he anticipates positive responses from investors to the gains expected in November and December. Additionally, Penn’s upcoming analyst and investor meeting in Las Vegas in October, as well as an Investor Day in December focusing on ESPN BET, are expected to increase awareness and highlight the brand’s early traction.
Despite a year-to-date decline of nearly 28% in the stock, Deutsche Bank’s bullish stance on Penn National Gaming in the short term offers a glimmer of hope for investors.