PENN Stocks Surge Following JPMorgan's Upgrade to Overweight
On Friday, shares of PENN Entertainment Inc (NASDAQ: PENN) experienced a significant increase, rising over 6% following an upgrade from JPMorgan. The firm changed its rating on the stock from Neutral to Overweight and raised its price target from the previous $19.00 to $27.00. This new target implies a potential upside of over 38%, given that the shares closed at $19.43 the previous day.
JPMorgan's upgrade reflects a positive outlook for PENN Entertainment's future. The analyst pointed out a favorable risk-reward scenario, expecting the company's regional land-based casino cash flow to bottom out. This expectation is based on easy comparisons and projected modest overall growth due to $850 million invested in four retail growth projects expected to start delivering attractive returns in the second half of 2025.
The analysis also indicated that expectations for the Interactive segment, which includes online sports betting and iGaming, have been established, anticipating modest positive EBITDA production by 2026. The report suggested that success with ESPN BET is viewed as a key driver for PENN's stock, but it also proposed that the company's land-based casino operations and market access fees alone could justify a share value of $26, even in the absence of significant success in the Interactive segment.
JPMorgan's note further discussed potential strategies PENN might employ, such as asset sales or mergers and acquisitions, if the Interactive segment does not perform as expected. It noted that these strategies could support the stock's value. Additionally, the firm anticipates that PENN will generate a significant amount of discretionary free cash flow by 2026, which would enhance the company's ability to reduce debt and interest expenses.
The assessment concluded with an optimistic view on PENN's financial metrics. The company is noted to be trading at attractive rent-adjusted EV/EBITDA multiples and free cash flow yields based on the 2025 and 2026 forecasts. The year-end price target for 2025 was derived from a sum-of-the-parts approach assigning target multiples to the company’s 2026 land-based casino and Interactive forecasts.