Stifel lowered its rating on Penn Entertainment ( NASDAQ: PENN ) to Hold from Buy based on a valuation reset by the firm.
Analyst Steven Wieczynski and team see more risk at this point for regional gaming stocks than Strip operators that spending levels or margins will deteriorate moving forward.
The firm's revised earnings estimates now sit ~6% below consensus for both 2023 and 2024. "Our fear is that consensus estimates are too aggressive at this point, and we would expect there might need to be some downward revisions moving forward," warned Wieczynski.
Also working against PENN is the substantial amount of new competition in Illinois, Louisiana, Iowa, Indiana, and Colorado - which Stifel does not believe is being properly accounted for in current estimates either.
"From a relative perspective, we believe there are better opportunities in our gaming universe with Macau-centric or LV Strip-centric operators. On the positive side, if the economy rolls over we believe PENN and other regional gaming names will be better protected this time around versus the last major recession."
For the short term, Stifel set a price target of $35 on PENN off a sum-of-the-parts approach. PENN's valuation, free cash flow yield, and lack of near-term positive share movement keep the firm interested for the long-term.
Shares of PENN dipped 0.33% in premarket trading on Friday.
Read why Seeking Alpha contributor Howard Jay Klein is bullish on PENN.
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Penn Entertainment catches downgrade from Stifel due to near-term earnings risk