Shares of gambling enterprise Penn Entertainment (NASDAQ:PENN) spiked higher against a soft opening backdrop on Wall Street. Catapulting sentiment was a Bank of America analyst, who upgraded PENN stock to a “buy” rating, citing a strong U.S. debut for ESPN Bet, a newly branded online sportsbook. Subsequently, options traders also seized the opportunity, bidding up shares in the derivatives market.
In early trading Monday, BofA Securities analysts led by Shaun Kelley anticipate robust upside thanks to ESPN Bet, raising their price target to $30 from $27. As Investing points out, the new price forecast implies an over 22% upside from Friday’s close. Fundamentally, Kelley sees the sportsbook offering an asymmetric risk-reward profile due to the following reasons:
- Opening download and app activity came in much stronger than previously anticipated.
- Initial offers demonstrated promotional discipline.
- Penn reported decent third-quarter earnings figures, which saw online division sales jump 23%.
Indeed, data that Kelley provided shows that ESPN Bet is dominating initial download activity and charts, demonstrating that the brand is resonating with customers. Notably, ESPN Bet represented either the number one or number two download of all free apps on the Apple (NASDAQ:AAPL) store since last Tuesday. Even without data from NFL Sunday, the app garnered 865,000 cumulative downloads and a 4.8 app store rating.
Options Traders See More Upside in PENN Stock
Interestingly, BofA’s new price objective of $30 for PENN stock breaks down to a $20 to $25 per share forecast on the base business. In addition, the experts anticipate $8 per share for the ESPN Bet optionality. That’s on the conservative side of the $7 to $15 per share potential range for the app, which apparently caught options traders’ attention.
Undergirding the robust sentiment for PENN stock has been a raft of bullish transactions, mostly bought calls along with a significant volume of sold puts. What’s of tremendous significance is the activity among large entities. Per Fintel’s options flow screener — which exclusively filters for big block transactions likely made by institutions — much of the bullishness stems from major players.
Further, the recent dramatic upswing in optimism exposed last week’s bearish bets recorded in options flow data. For example, on Nov. 15, major entities sold 2,062 contracts of the Dec 15 ’23 25.00 Call. Back then, PENN stock traded hands for $24.23.
Unfortunately for the bearish call writers (sellers), the market prices shares at over $26 at the time of writing. Moreover, one of the top institutional wagers was the acquisition of the aforementioned $25 call. Therefore, it’s possible that PENN stock may rise higher from here as the bears potentially cover this and other sold calls.
Why It Matters
Currently, TipRanks reports that PENN stock carries a moderate buy consensus view. With today’s upgrade from BofA, the assessment now breaks down as four buys and nine holds. Overall, the average price target comes in at $28, implying a bit over 6% 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.
