Einhorn's Greenlight Capital acquires stake in Penn Entertainment
Penn Entertainment (NASDAQ: PENN ) shares rose 2.41% today, with trading volume 55.7% above the daily average, after David Einhorn announced that his Greenlight Capital has raised funds in the first quarter of the region's casino operator takeover "Medium" shares.
Einhorn said in a letter to hedge fund clients that Greenlight established its Penn position at an average price of $22.69, well above the stock's closing price of $17.84. Shares are down 24% in the past 90 days and are down 31.44% year to date, making Penn one of the worst-performing gaming stocks during that period. Einhorn believes the market is negative about Penn's ESPN Bet unit but he sees potential in the space.
It's fair to say that after the Barstool debacle, investors had serious doubts about the company's strategy and management's ability to execute. "If the market attributes only 15% of DraftKings' value to PENN, that segment alone would be worth $20 per share," Einhorn wrote in the letter. "
The University of Pennsylvania on Monday announced the hiring of former Walt Disney (NYSE: DIS ) executive Aaron LaBerge as chief technology officer (CTO), a move that could bolster its interactive division, which includes ESPN Bet. ESPN Bet first launched last November.
Einhorn sees value in Pennsylvania’s land-based casinos
Since Penn acquired a stake in Barstool Sports (now defunct) in January 2020, many market participants have viewed the operator as an online gaming company and ignored its brick-and-mortar area casinos.
It shouldn't be like this. While the short-lived marriage to Barstool Sports and the recent launch of ESPN Bet grab headlines, and the latter may be an integral part of Penn's long-term investment thesis, the reality is that the company makes the majority of its profits and revenue from Land - generates casinos based on investment. Einhorn believes that the market is not paying adequate attention to this part of the business.
“PENN currently has an enterprise value of just over $4.3 billion, and we value their land-based casinos at between $4.3 and $7 billion based on 8x to 12x free cash flow,” the Greenlight founders wrote.
Even at $4.3 billion (the lower end of the range above), that's a significant premium over Penn's current market cap of $2.53 billion.
Einhorn is no stranger to giving the green light to gaming stocks
Einhorn's Greenlight joins HG Vora as the latest high-profile hedge fund firms to invest in the University of Pennsylvania. In December, HG Vora said it had taken an 18.5% stake in Penn's outstanding shares and asked for a board seat to push for change at the gaming company.
For his part, Greenlight is also familiar with gaming stocks, having previously held several roles in the industry, including companies that emerged from blank-check trading, including Genius Sports (NYSE: GENI) and Playstudios (NASDAQ:NASDAQ:NASDAQ:NASDAQ) DAC ticker: MYPS). There's also speculation that short positions in DraftKings (NASDAQ: DKNG ) may have contributed to the hedge fund's impressive 2022 performance.
Einhorn himself was an excellent poker player. In 2012, he finished third at the World Series of Poker, winning $4.35 million.
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Source: www.casino.org
