Why these two gambling stocks are soaring
Two casino gambling stocks were among the biggest gainers on Friday, both boosted by participation from major shareholders, but for different reasons.
pen entertainment (NASDAQ:PENN) stock rose 18% on Friday, surpassing $17 per share. Caesars Entertainment (NASDAQ:CZR) rose 11% to over $35 per share.
Both companies offer services such as casinos, resorts, gaming, and sports betting. Let’s take a look at what drove them higher.
The catalyst for Penn Entertainment was a letter to its board of directors and published publicly via Business Wire. Hedge fund shareholder Donerail Group called for change at the underperforming company.
Since surging above $136 per share in March 2021, Penn shares have fallen about 87% to about $17 per share. Including today’s gains, it’s down 33% year to date.
In a letter to Penn Board Chairman David Handler, Donerail Executive Director Will Wyatt urged the company to focus on its casino assets and sell underperforming assets such as ESPN BET.
“The core of our investment thesis is that the company’s current stock price is well below the company’s intrinsic value, and we believe that PENN’s suite of highly strategic casino assets alone could be worth more than double the company’s current market capitalization,” Wyatt said. 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.
But Wyatt also said the company’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) failed and was “ruined.” He said it was done. shareholder value.
“We understand that ESPN BET appears to be the company’s newest, brightest entity that could have significant value under the right owners, but we ask that the board take time to objectively reflect on the past four years of execution and evaluate shareholders. It is important to recognize that shareholders may simply be tired of continuing to gamble on uncertain outcomes,” Wyatt concluded.
Wyatt also said that focusing solely on casino assets could double the stock price. As Penn’s stock price rose, the letter was well received by investors.
Icahn is interested in Caesars.
Another big move was Caesars, one of the largest casino and gaming stocks. Caesars stock soared following Bloomberg’s original report that hedge fund manager Carl Icahn, owner of Icahn Enterprises, had acquired a “significant” stake in Caesars. The media cited sources familiar with the matter.
Bloomberg did not have details about why Icahn bought the stock or the size of the stake. However, CNBC reported later in the day that Icahn confirmed his ownership of Caesars.
“I like Caesars and I own some stock,” the activist investor told CNBC host Scott Wapner.
Apparently, he also told Wapner that he likes Caesars’ CEO and management and has no plans for shareholder activism at this time. So while the details of Icahn’s involvement are somewhat vague, the news was enough to send the stock price higher.
Caesars has struggled again this year, with its stock price plummeting 26% YTD. The stock is down 15% in the last 12 months.
PENN vs CZR Stock
Of the two stocks, Caesars looks like a much better play because it has a very cheap P/E ratio of 9. The casino operator’s consensus price target is $54 per share, about 53% higher than current prices. So it’s clear why Icahn was interested.
Penn, on the other hand, has not been consistently profitable and, as Donerail detailed, has several issues that need to be addressed. Perhaps it’s best to take a wait-and-see approach with this stock.
