With the stock down 13% year-to-date, Penn Entertainment (NASDAQ: PENN) urgently requires a boost and options for rebuilding investor confidence. These might take the shape of divestitures and shutting down the struggling ESPN Bet mobile sportsbook. 

In a message to clients sent late Monday, Stifel analyst Jeffrey Stantial stated that “the most value-accretive outcome” for Penn involves ending the ESPN Bet deal with Walt Disney (NYSE: DIS), divesting theScore, and enhancing transparency regarding market access royalties. 

Lately, there has been growing discussion about the future of ESPN Bet. Penn’s online sportsbook has not reached its targeted market share, and its third anniversary will be in August 2026. During that period, the gaming company or ESPN can exit the agreement — a detail highlighted by Penn CEO Jay Snowden during the operator's fourth-quarter earnings call last month. 

If Penn moves forward with the previously mentioned steps, there is a potential for $23 per share, noted Stantial. That’s significantly above the stock’s closing price on Monday of $17.26. The stocks have declined by 23.08% in the last month. 

Penn Expected to Stay Unstable in the Short Term 

Stantial recognized that clarity regarding ESPN Bet's future may not emerge until mid-next year, indicating the stock could stay volatile in the short term. 

The most significant near-term catalyst might be Penn’s June shareholder meeting, with a favorable outcome for the shares likely depending on investor HG Vora's success in a proxy battle for board seats. On January 31, the hedge fund nominated three individuals for the Penn board, each possessing gaming industry experience, with two of them having prior connections to Penn.

"Improved governance following the June shareholder meeting may also help stabilize sentiment, though investors will likely want a better sense of potential changes in strategy before starting to re-visit the name,” noted Stantial.

Regarding the sale of theScore, which Penn acquired for $2 billion in August 2021 to establish a presence in Canada, the company has not publicly commented on such a deal. At the NEXT Summit New York last week, theScore founder John Levy, who departed from Penn in February 2024, suggested the casino firm encountered some errors in sports betting. 

“They run good casinos,” Levy said. “But it’s a leap to think that just because you have that [casinos], you’re going to make sports betting work.”

A few Positive Aspects of Penn 

A shift to iGaming without sports betting and reminding investors that its fundamental regional casino operations are a lasting asset might be some strategies Penn uses to regain shareholder confidence.

"We continue to see PENN as best-in-class regional brick & mortar operators, with well-proven operating prowess likely translating to a more resilient top-line & margin outlook vs. peers amidst continued softness in the low-income consumer & sticky labor cost pressures,” adds Stantial. “We also favor PENN’s geographic diversity and predominately drive-to assets in the current macro environment, while comparatively high blended gaming tax rate limits operating leverage should the consumer deteriorate further.”

He assigns the stock a “hold” rating, with a price target of $19.