This sports betting company is a good short-term buy, Deutsche Bank says

Published Thu, Sep 14 20237:21 AM EDTUpdated Thu, Sep 14 202311:38 AM EDT

While Deutsche Bank is skeptical on the long-term story for Penn National Gaming , it is bullish on shares in the short term. Analyst Carlo Santarelli put a catalyst call buy, or short-term buy rating, on the sports betting company, which trades as PENN Entertainment. He has a hold rating and maintains his $29 price target on shares. The price target implies the stock could rally more than 35% from Wednesday's close. Shares rose nearly 5% in premarket trading Thursday. "Over the medium to longer term, we believe the risk-reward dynamic, at current levels in shares, is fairly balanced, given the ambiguity around the success of the ESPNBet strategic pivot," Santarelli said in a Thursday note. "However, over the near term, we believe a catalyst stack of events, coupled with an inexpensive valuation, relatively elevated short interest and limited investor interest on the long side, create a favorable setup for shares." In August, the company signed a licensing deal with ESPN to rebrand its sportsbook to ESPN BET, slated to launch in November. Through the deal, Penn has the exclusive right to the ESPN BET trademark in the U.S. for 10 years, with potential to be extended. "We expect the launch to drive healthy handle and GGR OSB market share gains, while also garnering considerable attention from mainstream financial media outlets," Santarelli said. While the longer-term success of the customer acquisition spend will remain ambiguous throughout 2023, we expect the burden to rest with the Bear in the early stages of market share gains, and, as such, we expect shares to respond well to the gains we anticipate in November and December." The analyst also believes Penn's October analyst and investor meeting in its M Resort in Las Vegas will help increase awareness around the development pipeline. An Investor Day in December, which is likely to focus on ESPN BET, will also highlight the brand's early traction, he added. The stock is down nearly 28% year to date. — CNBC's Michael Bloom contributed to this report.