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Truist Downgrades Penn Entertainment Amid ESPN Partnership Uncertainty
Truist's Stance on Penn Entertainment's ESPN Partnership
Truist Financial Corporation has expressed reservations about Penn Entertainment's recent partnership with ESPN. The financial services company downgraded Penn Entertainment's gaming stock from 'buy' to 'hold' on Wednesday, lowering the per-share price target from $33 to $30. This revised forecast implies an approximately 11% upside from Wednesday's closing price of $27.10.
Details of the ESPN Deal
Penn Entertainment grabbed headlines this week when it announced a deal with Disney's ESPN to relaunch its sports betting app under the new name, ESPN Bet. As part of this deal, Penn will discontinue the Barstool Sportsbook and divest Barstool. During its earnings call, Penn management informed investors of plans to launch the app in the middle of the 2023 NFL season.
Truist Analyst's View on the ESPN Bet Launch
However, Truist analyst Barry Jonas advised traders to take time to "digest" the news. He stated, "Penn's upside from ESPN Bet could be substantial, but we see significant execution risks that may not be resolved soon, while land-based trends appear stable. With management admitting they're a 'show-me' story, we recommend waiting before adding to positions."
Stipulations and Short-term Outlook
Jonas pointed out certain stipulations tied to the Disney deal, which can be terminated after three years, although the specifics of this provision have not been detailed by executives. He also noted, "In the short term, Penn management believes they're at least a year behind on the inflection to profitability, with DraftKings and others turning profitable this quarter."
Penn Entertainment's Stock Performance
Penn Entertainment's stock has seen a nearly 9% decline since the start of the year, indicating a pullback of 8.75%. Despite this, the overall outlook remains cautiously optimistic as the market awaits further developments on the ESPN Bet launch and its potential impact on Penn Entertainment's profitability.
Hot Take: Implications for New Businesses from Penn Entertainment's ESPN Partnership
The uncertainty surrounding Penn Entertainment's partnership with ESPN and its subsequent downgrade by Truist highlights the risks and challenges new businesses may face when entering strategic partnerships. While such alliances can offer significant potential for growth and expansion, they also come with execution risks that need careful consideration.
Strategic Partnerships: A Double-Edged Sword
For new businesses, this situation underscores the importance of thoroughly evaluating potential partnerships and the associated risks. While Penn Entertainment's ESPN Bet could bring substantial upside, the execution risks and potential for termination of the deal underscore the volatility of such strategic moves.
Market Perception and Stock Performance
The downgrade of Penn Entertainment's stock by Truist, and the subsequent decline in stock value, also highlights how market perception can be significantly influenced by strategic decisions. New businesses must be mindful of how their strategic moves are perceived by investors and analysts.
Conclusion: Navigating the Complexities of Strategic Partnerships
In conclusion, the situation with Penn Entertainment and its ESPN partnership offers a valuable lesson for new businesses. While strategic partnerships can open up new avenues for growth, they also come with inherent risks. Navigating these complexities requires careful planning, clear communication, and a thorough understanding of the potential impacts on business performance.
Article First Published at: https://www.cnbc.com/2023/08/10/truist-downgrades-penn-entertainment-says-uncertainty-lingers-over-espn-partnership.html
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