Deutsche upgrades Penn, Boyd on improving gaming demand outlook

Investing.com -- Deutsche Bank upgraded regional casino operators Penn Entertainment and Boyd Gaming to "buy" from "hold" on Tuesday, saying weak gaming revenue in August was largely due to calendar effects rather than weaker demand.

Deutsche estimated same-store regional gross gaming revenue, excluding Virginia, fell 2.5% year over year in August, compared with 4.4% growth in July. After adjusting for the calendar, revenue was roughly flat, it said.

August had one fewer Friday than a year earlier and was also affected by the shift in Labor Day, creating an estimated 250-basis-point headwind, Deutsche said.

The calendar turns more favourable in the coming months, with September expected to provide a roughly 40-basis-point tailwind and October a roughly 240-basis-point benefit. Deutsche said gaming data over the next week or so could be a key near-term catalyst.

Deutsche raised its price target on Penn to $25 from $23, implying about 66% upside. Penn shares have fallen about 33% over the past three months, compared with a roughly 3% gain in the S&P 500, while adjusted EBITDAR estimates have risen about 2%, the broker said.

It raised its target on Boyd to $99 from $98, implying about 47% upside. Boyd shares have fallen about 23% over the same period, while adjusted EBITDAR estimates have changed little.

Deutsche said the sector selloff was driven more by broader market concerns than by a meaningful deterioration in company-specific fundamentals. Valuation multiples have fallen by about 1.3 turns on average, it said.

Penn’s multiple has fallen about 0.8 turns, with the stock trading at 6.4 times its 2026 adjusted EBITDAR estimate, compared with an average forward multiple of about 6.6 times since January 2025. Boyd’s multiple has fallen about 1.0 turn, with the stock trading at 6.3 times, versus an average of about 6.9 times.

For Penn, Deutsche’s third-quarter 2026 adjusted EBITDAR forecast is about 1.9% above consensus and its 2027 forecast is about 1.6% above, driven by the Midwest and Northeast businesses. It expects Penn’s lease-adjusted net leverage to fall below 5.0 times by the end of 2027, even after about $50 million of share repurchases.

For Boyd, Deutsche said third-quarter results could be affected by a roughly $4 million Kansas Star property-tax headwind and weaker destination business in August and September.

It expects the outlook to improve in the fourth quarter and 2027 as destination comparisons ease, Suncoast renovation disruption largely ends and Cadence Crossing ramps up.

Deutsche also pointed to Boyd’s roughly $150 million quarterly share repurchase programme, which it estimates at about a 12% annualised buyback yield, and its expected 2.6 times net leverage at the end of 2026.

The broker kept its "buy" rating on Las Vegas locals casino operator Red Rock Resorts with a $73 price target, implying about 45% upside. Red Rock shares have fallen about 23% over three months despite stable fundamentals in the Las Vegas locals market.

Deutsche cited risks to its Penn and Boyd views including a weaker consumer environment, margin pressure, greater competition in key markets and weaker investor appetite for equities.

Original Article

You May Also Be Interested In

• S&P Dow Jones Indices launches joint index with HKEX
• Epic Games delays Disney title as studio shifts to AI-first model - Bloomberg
• Canada, Western allies condemn Iran over alleged attacks across Europe