Two casino-gambling stocks were amongst the very best fliers on Friday, and each were fueled by involvement from large shareholders — but for various reasons.
Penn Entertainment (NASDAQ:PENN) stock jumped 18% on Friday to over $17 per share while Caesars Entertainment (NASDAQ:CZR) surged 11% higher to over $35 per share.
Each firms offer casinos, resorts, gaming, and sports-betting, amongst other services. Let’s take a have a look at what drove them higher.
The catalyst for Penn Entertainment was a letter sent to its board and issued publicly via Business Wire. Shareholder Donerail Group, a hedge fund, called for changes on the underperforming company.
Since surging to over $136 per share in March 2021, Penn stock has collapsed, falling some 87% to around $17 per share. It’s down 33% 12 months to this point, including today’s gains.
In a letter to David Handler, chairman of the Penn board, Donerail Managing Director Will Wyatt urged the corporate to give attention to its casino properties and unload its underperforming assets like ESPN BET.
“On the core of our investment thesis, we imagine that the corporate’s current stock price is significantly below the intrinsic value of the corporate and that PENN’s suite of highly strategic casino assets alone may very well be price greater than double the corporate’s current market capitalization,” Wyatt wrote.
He called Penn’s portfolio of 43 casinos and racetracks, including Plainridge Park in Massachusetts and Margaritaville in Louisiana, the “crown jewel” of all its holdings.
Nevertheless, Wyatt also said the firm’s interactive strategy of spending billions of dollars on digital gaming properties like ESPN BET, Rating Media and Gaming, and Barstool Sports — which it later sold back to original owner Dave Portnoy for $1 — has failed and “destroyed” shareholder value.
“While we understand that ESPN BET appears as the corporate’s newest vibrant and glossy object which will thoroughly have significant value under the appropriate owners, we ask that the Board take a moment to reflect objectively on the past 4 years of execution, assess the shareholder capital that has been destroyed, and recognize that shareholders may simply be bored with continued gambling on uncertain outcomes,” Wyatt concluded.
Wyatt also stated that the stock price could double in value if it just focused on the casino properties. As such, the missive was well-received by investors, as Penn’s stock price shot higher.
Icahn involved in Caesars
The opposite big mover was Caesars, one in every of the biggest casino and gaming stocks. Caesars stock jumped on the news originally reported by Bloomberg that noted hedge fund manager Carl Icahn, owner of Icahn Enterprises, has taken a “sizable” stake in Caesars. The outlet cited sources conversant in the matter.
Bloomberg didn’t have any details about why Icahn had bought shares or the scale of the stake. Nevertheless, CNBC reported later within the day that Icahn had confirmed his ownership in Caesars.
“I like Caesars, and I own some stock,” the activist investor reportedly told CNBC host Scott Wapner.
Apparently, he also told Wapner that he likes Caesars’ CEO and management and that he has no plans for shareholder activism at this point. Thus, while details on Icahn’s involvement are a bit vague, the news was enough to propel the stock higher.
Caesars has struggled this 12 months as well, with its stock price plunging 26% YTD. The shares are off 15% over the past 12 months.
PENN vs CZR stock
Of the 2 stocks, Caesars looks just like the a lot better play because it is dirt low-cost with a P/E ratio of 9. The consensus price goal for the casino operator is $54 per share — some 53% higher than its current price. Thus, it is obvious why Icahn has shown interest.
Alternatively, Penn has not been consistently profitable and has some issues to work out, as Donerail detailed. It might be best to take a wait-and-see approach for this stock.