Penn Entertainment Pushed Out of S&P 500

Posted on: September 2, 2022, 06:01h. 

Last updated on: September 2, 2022, 06:11h.

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

Penn Entertainment’s (NASDAQ:PENN) lengthy share price decline is leading to the stock’s removal from the S&P 500.

Penn S&P 500
Barstool Sports founder David Portnoy. Penn Entertainment, which owns his company, is being removed from the S&P 500. (Image: National Review)

S&P Dow Jones Indices made the announcement today after the close of US markets, noting the regional casino operator and PVH Corp. (NYSE:PVH) are getting the boot from the world’s most widely followed equity gauge. That pair of stocks will be replaced by CoStar Group (NASDAQ:CSGP) and Invitation Homes (NYSE:INVH).

Those changes and others announced by the index provider will take effect prior to the open of US markets on Monday, Sept. 19. Penn Entertainment is the only gaming stock affected by the moves.

With the Bartstool Sportsbook operator leaving the S&P 500, the remaining gaming names in the index, in order of weight, are VICI Properties (NYSE: VICI), Las Vegas Sands (NYSE:LVS), MGM Resorts International (NYSE:MGM), Caesars Entertainment (NASDAQ:CZR), and Wynn Resorts (NASDAQ:WYNN).

Penn Looking Like Mid-Cap Stock

Penn’s stay in the S&P 500 was brief, as it, along with rival Caesars, was added to the index in March 2021. The casino operator’s departure from the benchmark makes sense because the S&P 500 is designed to be a large-cap gauge – a status Penn no longer meets.

All companies moving from the S&P 500 to the S&P MidCap 400 are more representative of the mid-cap market space, and all companies moving from the S&P MidCap 400 to the S&P SmallCap 600 are more representative of the small-cap market space,” according to a statement from S&P Dow Jones Indices.

As of today’s close, Penn sports a market capitalization of $5.27 billion, which undoubtedly qualifies as mid-cap territory.

While the gaming company has its share of supporters on Wall Street, how it arrived at the predicament of S&P 500 removal isn’t a mystery. The stock is down 39.63% year-to-date, and 62% over the past year. Over the near-term, those percentages could increase, as fund managers that benchmark to the S&P 500 are forced to sell shares of Penn.

Trillions of dollars of global assets are allocated to the S&P 500 and related index funds. For example, the three largest US-listed exchange traded funds (ETFs) all follow that index, and the trio has a combined $918.36 billion in assets under management.

Where Penn Stock Heads to Next

As noted above, Penn’s destination is the S&P MidCap 400 Index. While that’s a widely followed benchmark in its own right, it pales in comparison to the S&P 500. Additionally, mid-cap equities of all stripes are frequently overlooked relative to large- and small-cap fare.

Still, hope is not lost for Penn stock. Far from it. Historically, mid-caps outperform their larger and smaller counterparts, often doing so with less volatility than the latter.

As for prestigious index inclusions, it’s possible that with the benefit of major rally into the fourth quarter, Penn could be in position for promotion to the Nasdaq-100 Index (NDX) — same goes for Caesars — but that’s likely asking a lot of any gaming equity at this juncture.