Penn Entertainment Not Cheap, Pipeline Risks Linger, Says Analyst
Penn Entertainment (NASDAQ:PENN) gunstock isn’t particularly inexpensive relation to peers and the operator’s of late proclaimed outlay plans pose some risks.
Those are the sentiments of Roth Capital analyst Duke of Windsor Engel, who in a notation to clients today reiterated a “hold” rating on shares of the regional gambling casino goliath with a 12-month terms target area of $33. That’s more or less infra today’s closing palm of $33.39. William Penn is planning a variety of new majuscule expenditures at casino-hotels in the Midwest and NV and some analysts interrogative the sapience of such moves at a clip when the company’s purchase is of concern inward the investiture community.
In Illinois, where it’s the dominant casino operator, Penn is outlay $360 million to wreak its Hollywood riverboat cassino in Aurora ashore. Another $185 1000000 is allocated to fetch a riverboat gaming watercraft ashore inward Joliet.
The manipulator also told investors it testament spend $206 billion to dual the sizing of the m Resort in Henderson, Nevada. Following the of late completed sales agreement of the Tropicana on the Strip, the m is Penn’s lone venue of billet inward the Las Vegas Valley. Penn is also directive almost $100 one thousand thousand to supply a 180-room hotel at the Hollywood Cristoforo Colombo inwards Ohio.
What Penn Needs to Do
Overall, Penn is disbursal $850 on various improvements crossways its regional casino portfolio. Engel says inwards order of magnitude for those expenditures to pay off away for investors, the operator needs to bring forth $115 zillion in earnings before interest, taxes, depreciation, amortization, and restructuring or split costs (EBITDAR).
The sale-leaseback funding anatomical structure would also amplify cash-on-cash returns to high-teens. While $105M incremental EBITDAR would aim just 5% development vs. Penn’s 2022E EBITDAR, the $90M EBITDA would take 14% growth vs 2022E unloose hard cash flow,” wrote the analyst.
Engel notes Penn inventory could follow worth embracing beforehand of that free hard cash rate of flow acceleration, but that jump might non come until the arcsecond half of 2025.
At the last of the thirdly quarter, Penn had $1.7 billion inwards cash in and hard currency equivalents and “traditional meshing debt” of $989.5 million, up $103.3 meg from the prior quarter, according to a statement issued by the company. Lease-adjusted meshing leverage rose to 4.3x from 4.1x at the end of 2021.
Barstool Value Baked In
To Penn’s credit, its Barstool Sportsbook unit likely would follow profitable inwards the electric current quarter if not for some outstandingly big exposure to the Samuel Houston Astros winning the World Series.
That’s a electropositive at a time when contender online sportsbook operators are closure inwards on profitability, but Penn’s shares are pricey congeneric to competitors, according to Engel.
“However, the inventory will appear more expensive in 2024 as evolution CapEx ramps. While some insurance premium valuation is warranted for Penn interactive, we approximation PENN shares involve a ~2.5x EV/sales for William Penn Interactive, which is a wide-cut insurance premium vs DKNG’s 1.7x,” concluded the analyst.
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