Penn Entertainment Approves New $750M Buyback Plan

Posted on: December 8, 2022, 06:21h. 

Last updated on: December 8, 2022, 07:02h.

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

Penn Entertainment (NASDAQ:PENN) has added to the buyback binge in the gaming industry, announcing the approval of a $750 million share repurchase plan.

Penn buyback
Penn Entertainment CEO Jay Snowden. The company announced a new $750 million buyback plan. (Image: Bloomberg)

That’s in addition to a buyback program for the same amount announced by the Pennsylvania-based regional casino operator in February.

Repurchases by the Company are subject to available liquidity, general market and economic conditions, alternate uses for the capital and other factors. Share repurchases may be made from time to time through a 10b5-1 trading plan, open market transactions, block trades or in private transactions in accordance with applicable securities laws and regulations and other legal requirements,” according to a Form 8-K filing with the Securities and Exchange Commission (SEC).

A 10b5-1 trading plan allows companies to repurchase their own shares during periods in which they’d usually be prevented from doing so.

Companies Love Buybacks

Companies that announce buyback plans are not obligated to fulfill the total amount announced, confirming there’s flexibility with this form of shareholder rewards. Additionally, investors don’t pay taxes on buybacks as they do with dividends.

At the end of the third quarter, Penn Entertainment had $211 million left on the previously announced share repurchase program. In the aforementioned Form 8-K, the casino operator said it intends to exhaust that allotment before engaging in the newly announced $750 buyback plan.

“Given our strong financial positioning and our continued belief that there is significant dislocation between our stock price and our intrinsic valuation, we repurchased an incremental 5.35 million shares in the third quarter for $168 million or an average price of $31.40 per share. Subsequent to the end of the quarter, we repurchased an additional 1 million shares for $29.1 million at an average price of $28.95 per share,” said Penn CEO Jay Snowden on the company’s third-quarter earnings conference call.

As of the close of US markets today, Penn has 157.60 million shares outstanding, according to Finviz data. Based on today’s closing price of $32.95, the casino operator could shrink its shares outstanding tally by more than 22.76 million by spending $750 million on buybacks. The stock is down 36.45% year-to-date.

Penn Buyback Could Allay Investor Concerns

Penn’s stock is struggling in 2022. So much so that earlier this year, it was booted from the S&P 500. The stock is also being hampered by concerns that the company is spending too much on new projects and that the operator’s debt burden is too high.

However, there’s speculation that an activist investor may be eyeing the stock, which could put Penn on notice that it needs to pare debt and potentially part ways with slumping assets. Another possible catalyst for the stock is the point that the company’s digital gaming unit, including Barstool Sportsbook, is nearing profitability.

At the very least, the new buyback announcement tells investors Penn management sees value in the beaten-up stock.