PENN Entertainment’s shares went up 2.41% today on volume that was 55.7% over the regular daily average as a result of David Einhorn disclosing that Greenlight Capital took a “medium-sized” stake in the casino operator in Q1.
This way, Greenlight joins the list of popular hedge funds that have recently taken stakes in PENN Entertainment, including HG Vora.
Einhorn’s Letter to Hedge Fund Clients
As explained in the letter addressed to clients, the 1996-founded hedge that mainly invests in publicly traded North American corporate debt offerings and equities has established a position in Penn Entertainment at the average price of $22.69.
The price is well above the closing price of the stock, which was $17.84 while shares were off 24% in the past three months and 31.44% year-to-date.
The markers turned PENN into one of the worst-performing gaming equities over the respective periods.
Einhorn explained that while markets are currently assigning negative to PENN’s ESPN Bet unit, he still sees potential in the segment.
In the same letter, the founder of the hedge fund argued that after the “Barstool fiasco,” investors are having “serious doubts” regarding the company’s strategy as well as the management team’s competence to execute it.
The founder of the value-oriented investment management firm added that, provided the market would credit PENN with “merely 15% of DraftKings’ value,” the segment would be worth $20 per share.
ESPN Bet, which made its debut in November, could benefit from the fresh decision to hire ex-Walt Disney executive Aron LaBerge as its new chief technology officer.
There Is Value in Pen’s Brick-and-Mortar Casinos
In the context of PENN taking an eliminated stake in Barstool Sports at the start of 2020, a large number of market participants have regarded the operator as an online gaming play while disregarding the land-based regional casinos.
However, Einhorn thinks the markets are not assigning the correct value to that side of the business.
Einhorn, who is also a successful poker player boasting a third-place finish in the World Series of Poker in 2012, explained that PENN’s current enterprise value has crossed the $4.3 billion mark while brick-and-mortar casinos are valued between $4.3 billion and $7 billion “based on 8-12x multiple of free cash flow.”
Despite the short marriage with Barstool Sports and the fresh launch of ESPN Bet serving as primary generators, the company continues to generate most of its earnings and revenue via brick-and-mortar casinos.
Even at an enterprise value of $4.3 billion, which represents the low end of the previously mentioned range, it is an important premium to PENN’s current market capitalization of $2.53 billion.
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