Future of Penn Entertainment: Sale or No Sale?

Lea Hogg June 4, 2024

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Future of Penn Entertainment: Sale or No Sale?

Penn Entertainment experienced a surge in its shares last Friday. This was triggered by a letter from the Donerail Group, an investor, to the board of Penn Entertainment. The letter urged the board to consider selling the company. However, analysts remain skeptical about the likelihood of such a transaction.

The letter, penned by Donerail Managing Partner Will Wyatt, criticized Penn for its costly errors in the online sports betting sector and for overcompensating CEO Jay Snowden. Wyatt suggested that Penn could potentially double its current market value in a sale, thanks to its regional gaming assets. However, JPMorgan analyst Joseph Greff is not convinced that Penn will sell itself in the near future.

Greff acknowledged the concerns raised by Donerail, especially given Penn’s prolonged share declines. However, he also pointed out the “meaningful interactive losses” that have led to poor investor sentiment for the overall enterprise.

Despite the skepticism of Greff and other sell-side analysts, reports emerged on Monday suggesting potential interest in Penn. CNBC reported hearing about interest in Penn, although he did not identify any specific sources or suitors. He questioned whether Boyd Gaming or other gaming companies might consider acquiring Penn, which is widely regarded as a deep value name.

Skeptical of potential sale

Boyd Gaming, like Penn, is a regional casino operator, making it a plausible suitor. Boyd also has a significant presence in Las Vegas, something Penn lacks. However, there is considerable overlap between the two operators in the Midwest and South, suggesting that Boyd does not need to rush into a deal with Penn.

Furthermore, Boyd owns a 5 percent stake in FanDuel, implying that Penn’s struggling ESPN Bet business would not be a selling point in a potential deal. Boyd, based in Las Vegas, has not indicated any plans for large-scale acquisitions in the near term. This is likely one of the reasons why Penn’s shares slipped by almost 1 percent today.

The Donerail letter to Penn also addressed a long-standing concern of Penn shareholders: the company’s costly and numerous mistakes in the online sports betting industry. Donerail argued that Penn’s ventures in online gaming are not paying off and are overshadowing the operator’s impressive portfolio of regional casinos. Jefferies analyst David Katz seems to agree with the idea that Penn investors are growing weary of the company’s interactive missteps.

Katz suggested that, regardless of the outcome of the current process, a reassessment of the current path of investment and returns is warranted. This is due to the current competitive landscape in digital and the uncertainties surrounding the investment required to achieve the stated share goals. He concluded his report with a call for change, given shareholders’ limited tolerance for the costs of interactive expansion.