Penn Entertainment downgraded to Hold from Buy at Needham

Needham analyst Bernie McTernan downgraded Penn Entertainment (PENN) to Hold from Buy and removed the firm’s previous $22 price target after the company announced the early termination of their partnership with Disney’s (DIS) ESPN and new Interactive strategy focused on iGaming and omnichannel in the U.S. and maintaining their strategy with theScore in Canada. The bull case is that Penn can run a smaller, but profitable, Interactive business with the equity benefiting from no longer being burdened by Interactive losses, but the firm says the risk is a potential negative flywheel with Penn cutting back on marketing and other costs when competition is heating up from traditional online sports betting as well as prediction markets. The firm questions the cost structure of the business and revenue retention and growth, giving its less confidence in this “high floor strategy” until it learns more and has greater disclosure, the analyst tells investors.