Penn Entertainment Falls from Mid-Cap to Small-Cap Amidst Market Struggles


In a wave of financial challenge, the market capitalization of Penn Entertainment (NASDAQ: PENN) has been on a sharp downward trajectory resulting in a staggering 35.39% loss within a span of 365 days, essentially knocking it out of the mid-cap stock category. In fact, the value decline has been so pronounced the company, renowned for its flagship Ameristar in Black Hawk, Colorado, is finding itself relegated from a mid-cap index to a small-cap gauge.

On Friday, this decision, carrying significant implications, was made public by S&P Dow Jones Indices. They announced that shares of the beleaguered regional casino operator would no longer feature in the S&P MidCap 400 Index. Penn Entertainment will instead find a place in the S&P SmallCap 600 Index. This decision was made when Penn found itself with a market capitalization of $2.58 billion at the close of Friday. Typically, mid-cap stocks are characterized by market values ranging from $2 billion to $10 billion. However, there’s wiggle room within this classification, allowing index providers and fund sponsors to sometimes circumvent this definition, particularly towards the upper limit.

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The transition of Penn into the small-cap terrain can be attributed to its dwindling market value along with the increase in market caps of several S&P small-cap index companies. The latter’s equity growth has sufficiently beefed them up, making them suitable contenders for inclusion in the mid-cap scale.

In the words of S&P, “All companies being added to the S&P MidCap 400 are more representative of the mid-cap market space, and all companies being added to the S&P SmallCap 600 are more representative of the small-cap market space.”

The news of this move was followed by a minor dip in Penn’s shares during Friday’s after-hours session. The index changes are slated to come into effect on June 24.

Penn Entertainment’s stock had soared to new highs in March 2021, largely propelled by the online sports betting surge, leading to its inclusion in the S&P 500 – a marked recognition. But fortune proved fickle and an ensuing slump, currently continuing, saw Penn being ejected from the S&P 500 in September 2022. Following this, Penn found a berth in the S&P MidCap 400 Index.

As of June 6, Penn was given a rank of 383 out of the 400 names in the mid-cap index, reflecting a commanding weight of just 0.097% in the gauge.

However, the forecast isn’t entirely doom and gloom for Penn. While the transition from a mid-cap to a small-cap implies a downgrade, it also indicates a new wave of buyers may be on the horizon. Mid-cap stocks, in the grand scheme, often get overlooked compared to their larger and smaller equivalents. Concurrently, small-cap funds collectively have more assets under management than their mid-cap counterparts.

In essence, this means that there will be fund managers and issuers of passive products tracing the S&P SmallCap 600 Index who will now need to buy Penn shares. This could potentially offset some of the sales impacts brought on by the mid-cap managers and yield a silver lining in Penn’s current market cloud.