Shares of gaming giant Penn Entertainment (NASDAQ:PENN) jumped sharply on Thursday following a positive assessment by Deutsche Bank. Though the research arm of the financial institution remains skeptical about the longer-term narrative, analysts there are bullish for the short term. Earlier in the morning, PENN stock jumped 7%, adding slightly to the return in the early afternoon hours.
According to CNBC, Deutsche’s Carlo Santarelli issued a “catalyst call buy” or a short-term buy rating on the sportsbetting enterprise. Overall, though, he maintains a “hold” rating along with sticking with his present $29 price target on PENN stock. Still, the implication is that shares could rise more than 5% against Wednesday’s close.
Bolstering sentiment for the gaming specialist is its licensing deal it signed with ESPN — which is owned by Disney (NYSE:DIS) — to rebrand its sportsbook to ESPN BET. This platform will launch in November. Enticingly, Penn owns the exclusive right to the ESPN BET trademark in the U.S. for 10 years. Moreover, potential exists for the deal to be extended.
Still, Santarelli isn’t particularly convinced about the medium- to longer-term implications for PENN stock “given the ambiguity around the success of the ESPNBet strategic pivot.” But in the near term, the analyst cited a “catalyst stack of events,” including relatively elevated short interest and limited investor interest that may create an undervalued opportunity.
PENN Stock Sees an Uptick in Unusual Options Activity
While analysts’ positive ratings are encouraging for underlying long-side investors, it’s the smart money — those that wager in the derivatives market — that often offers the biggest sentiment boost. Sure enough, PENN stock lit up the radar for unusual options activity.
At time of writing, PENN represented one of the more unusual trades based on the delta between the Thursday session volume and the trailing one-month average metric. In this case, the gap came out to 66.68%, with total volume reaching 36,491 contracts against open interest of 261,947 contracts.
On a transactional basis, call volume hit 31,609 contracts against put volume of 4,882. On paper, this pairing yielded a put/call volume ratio of 0.15, implying bullish behavior. Also, Barchart indicates the put/call open interest ratio sitting at 0.4.
Generally, investors should be careful about reading put/call ratios at face value since selling (writing) options may carry the opposite implications of buying them. However, Fintel’s screener for options flow — which filters for big block trades likely made by institutions — reveals greater volume for bought calls.
Much of this volume expires shortly, possibly influenced by the Deutsche call.
Why It Matters
According to TipRanks, analysts peg PENN stock as a moderate buy. This assessment breaks down as three buys, eight holds and zero sell ratings. Overall, the average price target lands at $31.30, implying over 35% upside potential.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
