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Here's Why You Should Retain PENN Entertainment (PENN) Stock

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PENN Entertainment, Inc. (PENN - Free Report) is likely to benefit from development efforts, ESPN alliance and 3C’s initiative. Also, the focus on product improvements bodes well. However, an uncertain macroeconomic environment is a concern.

Let us discuss the factors that highlight why investors should retain the stock now.

Growth Catalysts

Development Plans: The company emphasizes reimaging its properties with best-in-class retail sports books, new games, enhanced technology, refreshed hotel offerings and new third-party restaurant concepts to drive growth. Also, it stated plans to build a new hotel at Hollywood Columbus in Ohio and a second hotel tower at the M Resort in Henderson, NV. In the fourth quarter of 2023, the company embarked on the construction of four retail expansion projects in Illinois, Ohio and Nevada. It expects these projects to reach completion by the first half of 2026, with an anticipated return on investment surpassing 15%. The development highlights the strength of the company's retail sector. It establishes a foundation for further investments in its expanding digital ventures, aimed at creating significant shareholder value in the long run.

Strategic Partnerships: In August 2023, the company entered into a transformative, exclusive, long-term strategic alliance with ESPN relating to online sports betting within the United States. Per the agreement, PENN will rebrand its existing Barstool Sportsbook across all online platforms in the United States as ESPN Bet (the Sportsbook) and oversee daily Sportsbook operations. The comprehensive alliance also paves a path for exclusive promotional services across all of ESPN’s platforms, programming and content, including access to ESPN’s famous roster of sports media personalities.

On Nov 14, 2023, the company launched ESPN BET in 17 states across the United States, leveraging ESPN's strong sports brand. The launch exceeded expectations, attracting more than 1 million new sign-ups for the company's PENN Play Rewards program and expanding its digital database by over 50%. ESPN BET bolstered the company's Hollywood-branded iCasino business, leading to a nearly 280% increase in monthly active users. The company anticipates a further acceleration in this regard by focusing on product improvements, particularly in areas of same-game parlays, player props and live betting.

3Cs: PENN Entertainment continues progressing toward the new generation of cordless, cashless and contactless technology, collectively known as 3Cs, to drive growth. The technological solution removes transaction friction, reduces wait times and bolsters its marketing capabilities. As of Dec 31, 2023, the company implemented 3Cs technology across 21 properties, representing approximately 70% of its retail EBITDAR. Throughout the fourth quarter of 2023, the company expanded its PENN wallet customer base to 110,000 and accumulated $300 million in total PENN deposits. It stressed the importance of customers utilizing the digital wallet, as they demonstrate increased loyalty through higher visitation rates, extended time spent on devices and overall theoretical earnings.


Zacks Investment Research
Image Source: Zacks Investment Research

In the past year, shares of PENN Entertainment have declined 38.5% against the industry’s 8.9% growth. The downside was primarily caused by challenges associated with the sale of Barstool and losses incurred during the relaunch of the online betting venture ESPN BET.

Dismal adjusted EBITDAR margin impacted investors’ sentiments negatively. During the fourth quarter, adjusted EBITDAR declined 76% from the year-ago quarter’s level to $112.5 million. Adjusted EBITDAR margin contracted to 8.1% from 29.5% a year ago. The company is cautious of an uncertain economic environment, which may affect its results in the near term.

Zacks Rank & Key Picks

PENN Entertainment currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Zacks Consumer Discretionary sector include:

Royal Caribbean Cruises Ltd. (RCL - Free Report) sports a Zacks Rank #1 (Strong Buy). RCL has a trailing four-quarter earnings surprise of 26.4% on average. Shares of RCL have surged 123.4% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for RCL’s 2024 sales and earnings per share (EPS) indicates a rise of 14.7% and 47.9%, respectively, from the year-ago levels. Group Limited (TCOM - Free Report) sports a Zacks Rank #1. TCOM has a trailing four-quarter earnings surprise of 53.1%, on average. Shares of TCOM have gained 34.4% in the past year.

The Zacks Consensus Estimate for TCOM’s 2024 sales and EPS indicates a rise of 18.2% and 8%, respectively, from the year-ago levels.

Hyatt Hotels Corporation (H - Free Report) carries a Zacks Rank #2 (Buy). It has a trailing four-quarter earnings surprise of 17.8% on average. Shares of H have increased 46.3% in the past year.

The Zacks Consensus Estimate for H’s 2024 sales and EPS indicates a rise of 3.5% and 27%, respectively, from the year-ago levels.

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