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Gambling stocks Penn Entertainment Payne and Caesars Entertainment Czech Republic Both stocks traded lower on Wednesday after a Wall Street casino stock analyst downgraded both stocks.
Casino Analyst: Bank of America analyst Shaun Kelley downgraded Penn to Neutral from Buy and lowered his price target to $40 from $45. Kelly also downgraded Caesars and lowered his price target to $55 from $60.
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Casino Takeaway: In the relegation note, Kelly listed six reasons why he is no longer optimistic about Caesar and Payne:
- Bank of America credit card data pointed to a slowdown in consumer spending trends.
- Overall gaming spending is flattening, as are casino visits.
- Gaming stocks are at risk of “over-earning” and deleveraging.
- Caesars has high financial leverage, while Penn has high operating leverage relative to power.
- Both companies have a solid but lackluster online gaming market share.
- At current prices, both stocks have limited upside to their valuations.
Kelley said Caesars and Penn are among the riskier gaming stocks he researches, with no return risk in the market right now.
“Gaming, especially the regional sector, is the largest ‘extra earner’ in our coverage, but unlike other segments of consumer discretionary, estimates have not declined, leaving potential risk if consumers weaken,” he said. Say.
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Gross gaming revenue growth for regional casinos has been impressive since the end of the pandemic, but Kelly said recent trends suggest that gross gaming revenue growth has the potential to return to the pre-pandemic trend line of 2010 to 2019. The average annual growth rate is only 0.5%.
Benzinga’s view: Caesars has been very aggressive during the pandemic, taking on a lot of debt when it acquired Eldorado and William Hill. Penn also made a bold move with the acquisition of Barstool Sports, but still holds only about 3% of the online gaming market, according to Bank of America.
Photo via Shutterstock.
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