Tuesday, Mizuho initiated coverage on Penn National Gaming (NASDAQ:PENN), assigning a Buy rating to the company's shares with a price target set at $29.00. The firm's positive outlook is anchored by several key factors that suggest potential growth and market opportunity for the gaming company.
The analyst from Mizuho outlined a Buy thesis for Penn National Gaming based on a trio of drivers. First, the valuation of the company is seen as compelling when the currently unprofitable Interactive segment is excluded. Second, there is anticipated upside to estimates and valuation from the ESPN Bet partnership, which is expected to significantly contribute to market share and EBITDA. Notably, the current share price does not reflect this potential, presenting what Mizuho views as a call option on future gains.
Additionally, the firm finds the risk/reward balance for Penn National Gaming to be attractive. The price target of $29 is supported by the potential for a rise to $45 and a floor at $13. This range indicates confidence in the stock's capacity to appreciate while also acknowledging a defined downside risk.
The coverage initiation comes at a time when Penn National Gaming is navigating a competitive and evolving gaming industry landscape. The company's strategic moves, particularly the partnership with ESPN Bet, are expected to be pivotal in driving future performance.
Mizuho's analysis suggests that the market has not fully recognized the value of Penn National Gaming's recent initiatives, particularly the ESPN Bet collaboration. The firm's price target reflects an expectation of growth and a favorable investment profile for the company moving forward.
InvestingPro Insights
As Penn National Gaming (NASDAQ:PENN) receives a favorable Buy rating from Mizuho with a price target of $29.00, it's important to consider the company's financial health and market performance. According to InvestingPro data, Penn National Gaming has a market capitalization of $2.54 billion and is trading at a price-to-book ratio of 0.79, which could indicate that the stock is potentially undervalued relative to its assets. Despite a slight revenue decline over the last twelve months, with a -0.61% change, the company maintains a robust gross profit margin of 43.52%.
InvestingPro Tips also reveal that management has been proactively repurchasing shares, which could be a sign of confidence in the company's future. However, analysts are not expecting profitability this year, and the stock has been experiencing significant volatility, trading near its 52-week low. With 5 additional InvestingPro Tips available for Penn National Gaming, investors can gain a deeper understanding of the company's prospects and challenges.
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