Shares of Penn Entertainment (NASDAQ: PENN) fell today following a rating downgrade by Bank of America. In a recent note, analyst Shaun Kelley revised Penn’s rating to “neutral” and set a price target of $22, implying limited upside potential from the current share price around $21. Kelley cited potential margin compression due to rising competition, particularly in Midwest and Louisiana markets.

Penn’s Illinois operations, where it leads as a casino operator, include a $360 million investment to move its Hollywood riverboat casino in Aurora onshore and an additional $185 million for a similar transition in Joliet. With competition intensifying, some analysts are speculating on potential market saturation in Illinois, the sixth-largest state.

Downgrade Follows Strong Recent Performance

Bank of America’s downgrade follows a strong performance for Penn, which saw its stock rise 9.7% in the week after Election Day and nearly 14% over the past month, narrowing its year-to-date loss to under 19%. However, Kelley described Penn’s current risk-reward profile as “balanced,” noting near-term pressures from rising fixed costs, potential earnings risks at regional casinos, and concerns over market share.

Penn’s debt load is also increasing, driven by significant regional investment. Kelley forecasts leverage reaching 6.3x in 2025, a 50% increase from 2021 levels, though he anticipates Penn may start reducing leverage into 2026.

Challenges for ESPN Bet

Penn’s ESPN Bet division continues to face scrutiny, with Kelley noting a lukewarm market share of 3% in sports betting and 2% in iGaming — well below Penn’s initial 2024 projections. On a positive note, Kelley highlighted ESPN Bet’s recent technology improvements, which could enhance customer acquisition and boost market share over time.

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