JPMorgan initiates on gaming company Penn, includes it as a 'top idea'

JPMorgan has initiated with an «overweight» on Penn Entertainment, a small-cap entertainment company and operator of integrated entertainment, sports content, and casino gambling in the U.S. and Canada. The target price suggests upside of 40% versus current quotes. JP Morgan analysts have Penn as a top idea on the back of planned new project openings and growing free cash flow.

JPMorgan officially launched coverage of Penn yesterday, June 23, as reported by CNBC. It assigned an «overweight» rating to the stock at a target price of $24 per share, as indicated by Yahoo Finance, meaning 40.3% upside from the closing price yesterday. In premarket trading today, the stock was up 1.6% as of this writing.

JPMorgan argues, in its note to clients, that Penn has an «attractive catalyst path with $1 billion new projects opening in the next two years, potentially driving upside to estimates.» For example, on May 28, Penn announced it would open New Hollywood Casino Joliet in Illinois in August – almost six months ahead of schedule. 

JPMorgan also mentioned an «improving FCF profile/balance sheet, with Penn targeting $325 million of remaining buybacks in 2025 (about 14% of market cap).» Meanwhile, as of early May, only $35 million of share repurchases had been made, the company reported. 

Among other positive factors for the business, JPMorgan cited a «lucrative market access fee stream» and the presence of multiple activist investors as shareholders, notes Investing.com.

In the first quarter, Penn reported 4% year-over-year growth in the top line to $1.67 billion, which translated into net income of $111.5 million, compared with a $114.9 million net loss in the year-before period. As of March 31, the company had $591.6 million in cash and cash equivalents.

Severe weather early in the year had a negative impact of at least $10 million on adjusted EBITDA, CEO and President Jay Snowden said in the earnings release. However, in the interactive segment, which includes online casinos and sports betting, Penn posted record revenue and adjusted EBITDA, Snowden pointed out.

Penn is off 13.7% year to date, yet Wall Street has been tepid on the stock. Eleven analysts now rate it a «hold,» according to data from MarketWatch, while a month ago the number was 12. Meanwhile, there are now 10 «buy» recommendations, up from nine recently.

The average target price is $21.33 per share, implying upside of nearly 25% versus current quotes.

The AI translation of this story was reviewed by a human editor.