The stock has jumped about 26% since May.
It has been a volatile year so far for Penn Entertainment (NASDAQ:PENN), the casino and online sports betting company.
The stock price has been all over the place, rising in the early part of the year after its sports betting property ESPN Bet, was licensed in New York State. It saw its shares rise into 2025 leading up the Super Bowl.
But then the stock tanked, in large part due to what turned out to be a proxy fight with one of its largest shareholders, hedge fund HG Vora Capital Management. HG Vora put up a slate of three candidates to sit on the board, for two open seats.
The hedge fund manager has been disappointed with Penn’s flagging stock price, which has been heading down for four straight years. Over the past three years, Penn stock has an average annualized return of -15% and over the past five years it has returned -8% per year.
As our sister publication, Poker Scout, reported, HG Vora wants the company to focus on its successful casino and racetrack businesses, as it owns 43 around the country. It also wants Penn to curtail its online sports betting business through its partnership with ESPN, which has not been profitable.
In the first quarter, Penn produced solid results, with revenue rising 4% year-over-year to $1.67 billion. Net income increased to $111 million, up from a $115 million loss a year ago.
While the casino business was mostly flat, it was the interactive segment — which includes ESPN Bet, online sports betting, and iGaming — that saw the biggest spike. Interactive revenue jumped 39% to a record $290 million.
However, the segment posted a net loss of almost $39 million, which is more than the $27 million loss in Q1 of 2024.
Penn stock up 26% since May
Over the past two months, Penn stock has risen about 26%, but it is still down 2% year-to-date. Some of the gains were fueled by a solid Q1 earnings report, but also by the HG Vora proxy fight.
Investors likely viewed potential board changes as a positive development, given the struggles Penn has had in creating shareholder value.
Ultimately, two of HG Vora’s candidates, Johnny Hartnett and Carlos Ruisanchez, were elected to the 8-member board on June 17. But Penn also supported those candidates.
A third HG Vora nominee, William Clifford, also received a majority of votes, but Penn had eliminated a board seat prior to the vote, so Clifford didn’t make it. But HG Vora founder and portfolio manager Parag Vora took it as a win.
“PENN’s shareholders have voted overwhelmingly for genuine change, including for the election of William Clifford to the Board. There can be no mistake about the mandate from PENN’s shareholders that the status quo is simply unacceptable,” Vora said.
Considering the results of the election, shareholders should expect that change is coming. But here’s the thing – for a stock that has struggled so much, it is still way overvalued, trading at 77 times earnings with a forward P/E of 65.
There’s a lot to figure out here and we won’t know much more until the next earnings report on August 7. It is probably best to sit on the sidelines until we see what’s next for this company, particularly since it is not cheap.
