Penn Entertainment

Penn's second-quarter revenue increased 5%. Adjusted EBITDA margins expanded to 16.8% from 13.4%, driven by improved profitability at its physical and online assets.

Why it matters: While Penn's online business faces intense competition, property renovations have improved the competitiveness of its core retail segment. With more investments to come, we see low-single-digit retail sales growth during the next few years, up from flat in 2024-25. Retail revenue grew 4%, with adjusted EBITDA up 6%. Last year's Joliet property relocation to a more attractive position along an interstate highway is driving strong results, with net revenue up 76%. Meanwhile, recently launched Auroura and Columbus properties are posting strong results. Online sales dropped 8% due to customer-friendly outcomes, competition, and the end of last year's ESPN partnership. But Penn's strategy to focus on markets with both sports and i-gaming, and its leading position in Canada, helped improve EBITDA margins to negative 3% from negative 20%.

The bottom line: We don't plan to change our $17 fair value estimate for no-moat Penn materially. We see shares as fairly valued. We think share volatility could remain, given online competition and the company's lease adjusted net leverage, which was 6.8 times in 2025. Our model assumes high-single-digit sales growth for Penn's interactive business, with profitability starting in 2027 and ramping to 20% in 2035. We see this as reasonable, as it already accounts for competition, with Penn's revenue share decreasing to 4% in 2030 from about 5% in 2035.

Long view: We think predictive betting expands the market to 18-year-olds-20-year-olds in unregulated states, taking a low-single-digit percentage share from traditional sports betting platforms, which offer a superior experience with custom products.

After reviewing second-quarter results, we have increased our fair value estimate to $18 per share from $17 due to increasing our 2026 sales growth to 7% from 6% previously and the time value of money. Our fair value estimate implies an enterprise value/EBITDAR multiple of 7 times our 2027 estimate. Key drivers of our intrinsic value are sales and EBITDAR in Penn’s four key US gaming regions—Northeast, South, West, and the Midwest—and across its interactive business, which includes online sports betting, i-gaming, and media assets.

Penn's second-quarter revenue increased 5%. Adjusted EBITDA margins expanded to 16.8% from 13.4%, driven by improved profitability at its physical and online assets.

We think predictive sports betting will mostly appeal to 18- to 20-year-olds in unregulated states, as traditional sports betting platforms can offer a superior experience with custom products like live in-game and parlay bets, given their liquidity advantages. Penn is prioritizing digital investments on its i-gaming business, Canada (where theScore brand has strong awareness), and sports betting in markets with the strongest returns. We see Penn maintaining a 4%-5% revenue share of the US online gaming market for the next few years. We see Penn's interactive revenue growing 10% on average annually during 2026-35. We believe Penn's shift to its theScore brand from ESPN can drive more efficient marketing spending, helping lift EBITDA margins to 20% by 2032 from a loss of 21% in 2025.

Penn's regional casino business is very competitive, requiring ongoing investment to lure in visitors. We are constructive on the company's position in Midwest markets with new assets in 2025-26, while competitive pressure from new peer offerings alleviates in 2026. We see revenue growth in the Midwest accelerating to 4% on average during 2026-30 from 1% in 2025, helped by relocation launches in Joliet and Aurora, Illinois. With no major openings and continued competition, we still expect low-single-digit revenue growth in the South during 2026-30. During the next 10 years, we estimate each of Penn’s four regions to average low-single-digit percentage revenue growth, as strong competition is mitigated by investment back into its portfolio.

During the next 10 years, we forecast Penn’s total EBITDAR margins to average 28%. We see the company’s 2026 physical asset EBITDAR margins at 33.5%, but averaging 35% during 2026-35, above the 32% in 2019, helped by ongoing renovations within the portfolio, which we see as a required cost of doing business in a competitive landscape.

We don’t think Penn Entertainment has an economic moat due to its outsize exposure to US gaming markets, where regulatory barriers are low and returns on invested capital measure in the single digits versus the double-digit level in the moaty Singapore and Macao gaming regions. This view is despite our positive stance on the company’s sports betting, i-gaming, and media business, where we see expanding sales and profits.

The US gaming market consists of about 1,000 commercial and tribal gaming casinos, compared with just two and 50 gaming locales in Singapore and Macao, respectively. This regional casino supply results in one US casino for every 342,000 people, versus 3.0 million and 28 million Singaporean and Chinese citizens per Singapore and Macao gaming property, respectively. Today, more than 40 states offer commercial and/or tribal gaming, with many legalizing wagering activities in the past two decades, keeping competition elevated for Penn. For example, Illinois allowed video gaming terminals in retail locations in 2009, resulting in about 60,000 electronic machines in 8,861 noncasino venues in 2025 (latest update), up from about 20,000 electronic machines in 5,222 noncasino locations in 2015.

Compared with the low-barrier characteristics of the overall US gaming industry, we are more constructive on Penn’s opportunity in the attractive US sports and i-gaming wagering market. Las Vegas was the only jurisdiction to legally take sports wagers prior to a Supreme Court ruling in 2018 that opened the activity to other territories. Since that decision, more than 30 states and the District of Columbia have legalized sports wagering, driving the US sports betting revenue market to $16.7 billion in 2025 from just $335 million in 2018. Further, eight states currently offer i-gaming (casino game betting online), which led to sales of $10.5 billion in 2025 from about $500 million in 2019.

Along with MGM and Caesars, we see Penn's omnichannel presence helping position it to participate in the attractive US sports betting and i-gaming market. In our view, Penn should be able to use its physical retail presence to leverage mobile and loyalty assets over the long term. In that regard, Penn’s 42 retail casinos spread across 20 US states position it well to compete with other industry leaders like Caesars’ and MGM’s domestic portfolios of more than 50 and 31, respectively, as of the end of 2025. In fact, we calculate that Penn garnered a high-single-digit percentage revenue share of the US commercial gaming market in 2025. But with the rapid legalization of sports and i-gaming wagering in the past few years, operators have needed to develop and integrate a mobile and loyalty offering into an omnichannel presence. Although Penn’s loyalty membership of 34 million individuals sits below Caesars’ and MGM’s roughly 65 million and 45 million, respectively, the company's theScore brand and in-house technology platform offer increased control of expenses and innovation versus utilizing a third party (MGM’s mobile business uses Entain’s technology platform). As a result, Penn can efficiently acquire, retain, and cross-sell customers across its physical and digital assets.

Penn’s digital business benefits from its strong physical locations, as many states require operators to have a retail location to receive a sports betting or i-gaming license. In fact, states often give multiple sports betting licenses, or skins, to land-based casino operators like Penn, which then sell those rights to companies without a physical presence in return for equity, or we estimate around 10% of their net gaming sales, allowing them to mitigate some of the competitive threat of multiple players in a given market. Overall, we calculate that the combination of Penn’s physical, loyalty, media, and mobile assets led to its 4%-5% revenue share of the US sports and i-gaming market in 2025, near the 5% we estimated for Caesars in that year.

We see Penn's domestic properties and theScore brand positioned to participate in the $52 billion US sports betting and i-gaming revenue opportunity by 2030.

Penn has a strong omnichannel offering, which includes over 40 physical casinos, a digital platform of media assets and online wagering, and a large loyalty membership of over 30 million.

The company is the leading online operator in Ontario and Alberta, aided by its 2021 acquisition of theScore.

Debt levels are elevated, which could inflate financing costs for future renovations and investments.

All cash flow for the company comes from the domestic region, which has lower barriers, demand, margins, and ROICs than Macao.

The company faces ongoing competition from new domestic supply and competitive renovations of competitors' physical assets, as well as from predictive sports betting in the online gaming industry.