Penn Entertainment Stocks Boom Amidst Acquisition Rumours and Investor Concerns

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Penn Entertainment’s (NASDAQ: PENN) shares skyrocketed last Friday following a letter from the Donerail Group, one of the company’s investors, appealing to the gaming company’s board to contemplate a sale. However, some analysts are skeptical that an acquisition is imminent on the horizon.

Penn Chairman David Handler received a scathing letter from Donerail Managing Partner Will Wyatt. In the letter, Wyatt chastised the company for its extravagantly costly misdemeanors in the domain of online sports betting, to its exorbitant pay-outs to CEO Jay Snowden. In Wyatt’s perspective, selling the company could entail a potential market value of twice its current size, due to the enviable portfolio of regional gaming assets Penn Entertainment has under its belt. However, Joseph Greff, a JPMorgan analyst, harbors doubt regarding a quick-fire sale by Penn.

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Greff volleyed his thoughts on a potential sale, declaring he couldn’t foresee any buyer agitation leading to sustainable shareholder value-creation. He acknowledged the standpoint from which Donerail seemed to be originating, considering Penn’s extended period of declining shares. Yet, he highlighted the burgeoning financial drain caused by consistent interactive losses, thereby resulting in overbearing negative sentiment among investors for the enterprise as a whole.

Nevertheless, despite reservations from Greff and other similar analysts, reports from Monday tell a more optimistic tale. David Faber from CNBC mentioned roundabout buzz about an interest in Penn, albeit without specifying any sources or distinct suitors. Faber hinted at the possible interest of Boyd Gaming (NYSE: BYD) or other gaming giants, who might be looking at Penn as a hidden gem.

Contrasting the two, it’s easy to suggest Boyd as a prospective buyer largely because it shares the regional casino operator quality with Penn. Above and beyond, Boyd maintains a noteworthy Las Vegas footprint, which is conspicuously missing in Penn’s portfolio. Echoing Penn’s regional presence, Boyd already enjoys an established reach in the Midwest and the South, suggesting it isn’t under pressure to strike a deal with Penn.

Moreover, Boyd carries a 5% stake in FanDuel. This renders Penn’s underperforming ESPN Bet business a non-factor in the potential deal. Confirming the low interest, shares of Penn dipped almost 1%, indicating the Las Vegas-based Boyd has not shown public intentions of major acquisitions in the near future.

Accompanying the draw of a possible sale, Donerail also tackles an escalating concern among Penn shareholders in their letter: the company’s expensive and frequent fumbles in the online sports betting arena. Hypothesizing like those before them, Donerail contested that Penn’s digital gaming gambles were backfiring, overshadowing the company’s otherwise appealing set of regional casinos.

Resonating with this sentiment, Jefferies analyst David Katz expressed agreement with the idea of wary investors tiring of Penn’s repeated interactive gaming hiccups. Katz highlighted the urgent need for a revisit and reassessment of the pathways of investment and returns, considering the dynamic digital landscape and the looming uncertainties surrounding the investment requisites to achieve stated goals. By his assessment, something has to shift, especially considering shareholders’ dwindling patience for the costs of expanding interactive play.