Einhorn’s Greenlight Capital Takes Penn Entertainment Stake

Posted on: April 24, 2024, 03:52h. 

Last updated on: April 25, 2024, 10:24h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Shares of Penn Entertainment (NASDAQ: PENN) jumped 2.4% Wednesday on volume that was 55.7% above the daily average after David Einhorn disclosed that his Greenlight Capital took a “medium sized” stake in the regional casino operator in the first quarter.

Einhorn Betway
Greenlight Capital founder David Einhorn at the World Series of Poker. His hedge announced a new stake in Penn Entertainment. (Image: Institutional Investor)

In a letter to the hedge fund’s clients, Einhorn said Greenlight established a position in Penn at an average price of $22.69, well above the stock’s closing price of $17.84. The shares are off 24% over the past 90 days and 31.4% year to date, making Penn one of the worst-performing gaming equities over those periods. Einhorn argued markets are assigning negative value to Penn’s ESPN Bet unit, but he sees potential in that segment.

It’s fair to say that after the Barstool fiasco, investors have serious doubts about the company’s strategy and management’s competence to execute,” Einhorn wrote in the letter. “Were the market to credit PENN with merely 15% of DraftKings’ value, the segment alone would be worth $20 a share.”

On Monday, Penn announced the hiring of former Walt Disney (NYSE: DIS) executive Aaron LaBerge as chief technology officer (CTO) — a move that could bolster the interactive division, including ESPN Bet. ESPN Bet debuted last November.

Einhorn Sees Value in Penn’s Land-Based Casinos

Since Penn took a now-eliminated stake in Barstool Sports in January 2020, many market participants have viewed the operator as an online gaming play while ignoring its brick-and-mortar regional casinos.

That shouldn’t be the case. While the brief marriage with Barstool Sports and the recent launch of ESPN Bet are headline generators, and the latter could be material to the long-term Penn investment thesis, the reality is the company generates the bulk of its earnings and revenue from land-based casinos. Einhorn believes markets aren’t assigning adequate value to that side of the business.

“PENN’s current enterprise value is just over $4.3 billion, and based on 8-12x multiple of free cash flow, we valued their land-based casinos between $4.3 billion and $7 billion,” wrote the Greenlight founder.

Even at $4.3 billion, the low end of the range mentioned above, that’s a substantial premium to Penn’s current market capitalization of $2.53 billion.

Einhorn’s Greenlight is No Stranger to Gaming Stocks

Einhorn’s Greenlight joins HG Vora as the well-known hedge funds that have recently taken stakes in Penn. Last December, HG Vora said it took an interest of 18.5% of Penn’s shares outstanding and demanded board seats in an effort to push for change at the gaming company.

For its part, Greenlight is also familiar with gaming equities, having previously held numerous positions across the industry, including in firms born out of blank-check deals, including Genius Sports (NYSE: GENI) and Playstudios (NASDAQ: MYPS). There was also speculation that a short position in DraftKings (NASDAQ: DKNG) may have been among the contributors to the hedge fund’s impressive 2022 performance.

Einhorn himself is an accomplished poker player. In 2012, he finished third in the World Series of Poker, winning $4.35 million in the process.