Two casino-gambling stocks were among the highest fliers on Friday, and both were fueled by involvement from large shareholders — but for different 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.
Both companies offer casinos, resorts, gaming, and sports-betting, among other services. Let’s take 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 at 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 is down 33% year to date, including today’s gains.
In a letter to David Handler, chairman of the Penn board, Donerail Managing Director Will Wyatt urged the company to focus on its casino properties and sell off its underperforming assets like ESPN BET.
“At the core of our investment thesis, we believe that the company’s current stock price is significantly below the intrinsic value of the company and that PENN’s suite of highly strategic casino assets alone could be worth more than double the company’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.
However, Wyatt also said the firm’s interactive strategy of spending billions of dollars on digital gaming properties like ESPN BET, Score 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 company’s newest bright and shiny object that may very well have significant value under the right owners, we ask that the Board take a moment to reflect objectively on the past four years of execution, assess the shareholder capital that has been destroyed, and recognize that shareholders may simply be tired of 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 interested in Caesars
The other big mover was Caesars, one of the largest 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 familiar with the matter.
Bloomberg didn’t have any details about why Icahn had bought shares or the size of the stake. However, CNBC reported later in 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 year 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 two stocks, Caesars looks like the much better play as it is dirt cheap with a P/E ratio of 9. The consensus price target for the casino operator is $54 per share — some 53% higher than its current price. Thus, it is evident why Icahn has shown interest.
On the other hand, Penn has not been consistently profitable and has some issues to work out, as Donerail detailed. It is probably best to take a wait-and-see approach for this stock.