PENN Entertainment Inc. (NASDAQ: PENN) is an integrated entertainment experience provider encompassing land-based casinos, iGaming, digital sports betting, racetracks and hotels. The company operates 43 casinos and racetracks in 20 states, along with sports betting through its ESPN BET mobile app in 18 states. With NFL football season underway, the company’s rebranded ESPN BET will be put to the test. This is the first full NFL season that the $1.5 billion 10-year branding deal with the Walt Disney Co. (NYSE: DIS) owned ESPN network is operational.
The omnichannel provider of entertainment experiences operates in the consumer discretionary sector, competing with electronic sportsbook operators like DraftKings Inc. (NASDAQ: DKNG), Flutter Entertainment plc (NYSE: FLUT) and MGM Resorts International Inc. (NYSE: MGM).
Rebranding PENN’s Trouble Barstool Sportsbook
PENN originally acquired Barstool Sportsbook as its sports betting arm for around $550 million in 2020. Unfortunately, the company became more of a liability that never lived up to expectations and PENN sold back the Barstool shares to its previous owner, David Portnoy, for $1. Apparently, Portnoy's affiliation with Barstool made it nearly impossible for it to gain gaming licensing approval in many states. PENN is also to receive 50% of future proceeds and monetization of Barstool Sports as part of its deal with Portnoy, who stated he would never sell Barstool again.
A $1.5 Billion Bet Upgrading to ESPN
PENN rebranded the sportsbook as ESPN BET after making a deal with the network. PENN agreed to pay $1.5 billion in cash over its 10-year deal and also granted ESPN $500 million of warrants to buy up to 31.8 million shares of PENN stock. The rebranding is enabling it to gain gaming licenses where Barstool couldn’t. It’s also appealing to a larger, more mature and wealthier audience of viewers of the ESPN network with more disposable income.
Barstool’s audience was viewed as younger, immature “frat bros” with less liquidity. While ESPN+ has 24.9 million subscribers, ESPN has a reach of 185.9 million viewers or two-thirds of the adult population in the United States, which gives PENN much more exposure than it ever would under Barstool. The company is betting the rebranding will pay off as ESPN BET will be plastered all over the network's programming.
Trying to Stage a Turnaround
As for the rest of the company, PENN Entertainment reported a second-quarter 2024 EPS loss of 18 cents, which still beat consensus estimates by 9 cents. Revenues fell 0.7% YoY to $1.66 billion to beat consensus estimates for $1.65 billion. Adjusted EBITDAR was $496.6 million and margins of 34.8%.
Interactive Segment and ESPN BET is Ready for Growth
It’s interactive segment comprised of ESPN BET generated revenues of $232.6 million and an adjusted EBITDA loss of $102.8 million. ESPN BET launched in New York in August 2024.
PENN CEO Jay Snowden commented, “We recently began the rollout of our ESPN BET product enhancements and will launch the remaining key upgrades prior to the start of college football and our launch in New York. In parallel, our partners at ESPN are expanding our unique ESPN BET media integrations, including those with ESPN's leading fantasy football product, which boasts over 12 million active users." Snowden is adamant that cross-selling opportunities from ESPN BET customers will be a growth driver as PENN Play grew to 31 million members or up 80% since launching ESPN BET.
NFL Season Forecast for Record Legal Sports Wagers
With sports betting legalized in 38 states, the 2024 NFL season is expected to generate a new record number and amount of bets. According to the American Gaming Association, football fans will generate $35 billion in legal wagers through the NFL season, which is a 30% YoY surge. Bank of America Inc. (NYSE: BAC) estimates FanDuel controls 42%, and DraftKings controls 34% of the total money bet across the nation. BetMGM commands a 7% market share, followed by Caesars Entertainment (NASDAQ: CZR) Sportsbook at 5% and an estimated 3% for ESPN BET. Any market share gains during the 2024 NFL Season will be a growth driver for PENN as expectations have been and remain low.
PENN Forms an Ascending Triangle Pattern
An ascending triangle is a bullish pattern comprised of a flat-top upper trendline resistance converging with an ascending (rising) lower trendline support comprised of higher lows. The breakout occurs when the stock surges through the upper trendline.
PENN formed the flat-top upper trendline resistance on the lower gap fill level of $20.46. The rising lower trendline has been deflecting pullbacks at higher lows. The upside gap fill level is at $22.30. The daily relative strength index (RSI) is rising to the 59-band. Fibonacci (Fib) pullback support levels are at $18.98, $17.84, $16.54 and $13.47.
PENN’s average consensus price target is $23.77, and its highest analyst price target sits at $32.00.
Cash-Secured Puts: A Smart Entry for Bullish PENN Investors
Bullish PENN investors can consider using cash-secured puts at the fib pullback support levels to enter on pullbacks. A wheel strategy can be executed by writing covered calls after being assigned to generate income and provide a buffer against a deeper pullback.
To gain from the potential price rise while keeping costs low, bullish options players can consider a bull call debit spread strategy.
