Eldorado Resorts Stock Draws a Crowd of Hedge Funds as Completion of Caesars Acquisition Looms

Posted on: December 2, 2019, 07:21h. 

Last updated on: December 2, 2019, 11:38h.

Todd Shriber @etfgodfather Read More

Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Shares of Eldorado Resorts, Inc.’s (NASDAQ:ERI) stock tumbled late in the second quarter after the regional gaming company announced a $17.3 billion takeover offer for Caesars Entertainment Corp. (NASDAQ:CZR).

That weakness extended into the following quarter, with the stock shedding roughly a third of its value from its June pre-acquisition announcement peak to its September trough, as some analysts fretted Eldorado was paying too steep a price for Caesars. However, that didn’t deter hedge funds from scooping up shares of the operator of 26 casinos across the US during the July through September period.

As of Sept. 30, 44 hedge funds held positions in Eldorado stock, up from 37 at the end of the second quarter, continuing a steady increase of hedge fund ownership in the gaming company this year.

Heading into the fourth quarter of 2019, a total of 44 hedge funds held long positions in this stock, a change of 19 percent from the previous quarter,” according to Insider Monkey. “On the other hand, there were a total of 24 hedge funds with a bullish position in ERI a year ago.”

Over the past four years, the number of hedge funds owning Eldorado stock has quadrupled.

Favorable Comps

With 44 hedge funds having stakes in Eldorado, ownership of the regional gaming company’s shares by those instruments compares favorably with some other gaming equities. For example, 45 hedge funds held positions in Caesars at the end of the third quarter, a number that’s slightly below the 48 seen at the end of June, indicating some fund managers are taking profits in the Harrah’s operator’s stock following the acquisition news.

It is widely expected that Reno-based Eldorado will put the finishing touches on the deal that will create the largest US gaming company by number of properties in the first half of 2020, though it’s possible completion could be reached in the first quarter.

Based on the number of funds involved with the stock, hedge fund ownership of Eldorado slightly exceeds that of Las Vegas Sands (NYSE:LVS), the largest domestic gaming company by market value.

While various hedge fund managers may agree that a stock, gaming or otherwise, is poised to increase, what differs is the managers’ time frames. Some hold stocks for a year or longer, while others may be involved for just a few quarters.

Familiar Names

Some familiar names are found among the hedge funds invested in Eldorado.

More specifically, HG Vora Capital Management was the largest shareholder of Eldorado Resorts, with a stake worth $229.3 million reported as of the end of September,” according to Insider Monkey.

HG Vora also owns stakes in Twin River Worldwide Holdings, Inc. (NYSE:TRWH) and International Game Technology Plc (NYSE:IGT), and has provided financing to smaller, privately held gaming operators.

After HG Vora, Canyon Capital Advisors is the second-largest hedge fund owner of Eldorado. That firm also has a position in MGM Resorts International (NYSE:MGM).

Investors, hedge funds and otherwise, that bought Eldorado shares in the third quarter have been rewarded. Since Oct. 1, the stock is up almost 39 percent, and is higher by 20.65 percent over the past month.