Penn Entertainment Leaving S&P Mid-Cap Index, Joining Small-Cap Gauge

Estimated read time 3 min read

Amid a lengthy slump that includes a 35.39% loss over the past year, Penn Entertainment (NASDAQ: PENN) has seen its market capitalization erode to the point that it no longer fits the bill as a mid-cap stock.

Penn Entertainment’s Ameristar in Black Hawk, Colo. Shares of the operator are being removed from a mid-cap index and joining a small-cap gauge. (Image: Visit Denver)

S&P Dow Jones Indices made that call Friday, announcing that shares of the regional casino operator will be removed from the S&P MidCap 400 Index and will join the S&P SmallCap 600 Index. As of Friday’s close, Penn sported a market capitalization of $2.58 billion. Mid-cap stocks are generally defined as though with market values of $2 billion to $10 billion, but index providers and fund sponsors often take some liberties with that definition, particularly at the higher end.

Specific to Penn, the move to small-cap territory is the result of its declining market value and rising market caps for some members of the S&P small-cap index that make those equities credible additions to the mid-cap gauge.

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,” according to a statement issued by S&P.

Shares of Penn traded slightly lower in Friday’s after-hours session on the news. The index changes will take effect on June 24.

Penn Entertainment History of Index Changes

As the stock approached all-time highs in March 2021 fostered in large part by the online sports betting boom, Penn joined the S&P 500 — a prestigious inclusion.

However, the stock’s time in the most widely followed gauge of US equities was brief. Penn’s slump, in which it is still mired, set in around the time it joined the S&P 500, forcing the index provider to boot the shares from that index in September 2022.

After being jettisoned from the large-cap S&P 500, Penn joined the S&P MidCap 400 Index where it has since resided. Each of the S&P benchmarks mentioned here are cap-weighted, meaning the largest stocks by market value are assigned the biggest weights in the index.

As of June 6, ranked 383 out of 400 names in the mid-cap index, commanding a weight of just 0.097% in the gauge.

Maybe Not All Bad News for Penn

On the surface, it appears as though Penn’s stock is being demoted to small-cap from mid-cap. That coupled with the point fund managers following the S&P MidCap 400 Index will be forced to sell shares of the gaming stock could prompt concern among investors.

The other side of the story is that mid-cap stocks are generally considered overlooked relative to their larger and smaller counterparts. As such, small-cap funds, in aggregate, have more assets under management than mid-cap equivalents.

Additionally, active fund managers and issuers of passive products tracking the S&P SmallCap 600 Index will have to buy shares of Penn, potentially offsetting some of the sales of that stock by mid-cap managers.

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