Penn Entertainment Downgraded as BofA Sees Muted Risk-Reward
Shares of Penn Entertainment (NASDAQ: PENN) traded lower today after Bank of America pared its rating on shares of the regional casino operator.
In a new report to clients, analyst Shaun Kelley downgraded Penn to “neutral” with a price target of $22. That implies limited upside from the $21 area at which the stock resides at this writing. The analyst said Penn margins could be crimped in the coming quarters due to increased competition in some Midwest markets and Louisiana.
In regionals, we expect revenue and margin pressure from new supply to continue in 4Q and 2025 with acute impacts in Iowa/Council Bluffs, Illinois/Indiana (Joliet/East Chicago) and Louisiana (Bossier City) from casino openings, before getting a boost from $850M of capex opening in late ‘25 and ’26,” observed Kelley.
In Illinois, where it’s the dominant casino operator, Penn is spending $360 million to bring its Hollywood riverboat casino in Aurora ashore. Another $185 million is allocated to bring a riverboat gaming vessel ashore in Joliet. Those expenditures could prove crucial because casino competition is increasing in the sixth-largest state, so much so that some analysts are pondering saturation in the gaming market there.
Downgrade Comes as Penn Is on Torrid Pace
Bank of America’s downgrade of Penn arrived as the gaming stock is on a torrid run. The shares are up 9.70% in the week since Election Day and nearly 14% over the past month — gains that have trimmed the stock’s year-to-date loss to less than 19%.
However, big gains in short timeframes could be among the reasons why the research firm views Penn’s risk-reward profile as “balanced” for the time being. Kelley mentioned earnings risk at regional casinos, elevated fixed costs, and market share woes as among the issues that could weigh on the Penn bull thesis over the near-term.
