Caesars Stock Soars on Vegas Recovery, Analysts Rush to Boost Price Targets

Posted on: May 5, 2021, 08:13h. 

Last updated on: July 6, 2021, 04:26h.

Todd Shriber @etfgodfather Read More

Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Caesars Entertainment (NASDAQ:CZR) stock is higher by six percent in early trading Wednesday, a day after the gaming company delivered a blistering first-quarter earnings report — one including commentary that Las Vegas is roaring back to life.

The Paris operator notched earnings before interest, taxes, depreciation and amortization (EBITDA) of $505 million in the January through March period. That’s while noting its Las Vegas properties are sold out on weekends for the “foreseeable future,” according to CEO Tom Reeg. On a call with analysts, executives also highlighted debt reduction and cash flow generation targets, much to Wall Street’s delight.

With Caesars targeting debt cuts of $2 billion over the next year and free cash flow (FCF) estimates ahead of Wall Street expectations, at least three analysts lifted price targets on the name today. That group includes Stifel’s Steven Wieczynski who boosts his 12-month price forecast on the Harrah’s operator to $125 from $110.

Seems like just yesterday we had investors questioning CZR’s ‘guidance’ of 40 percent margins and $10/share in FCF. At this point we believe both of those targets will not only be met over the long-term, but we believe there is considerable upside to both,” he said in a note to clients.

On Tuesday’s post-earnings conference call, Reeg said it’s likely the company generates $1 billion in EBITDA in at least one quarter this year while revealing an impressive 2022 earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR) expectation.

“CZR indicated they would be disappointed if they didn’t do at least $4B in EBITDAR in 2022. Are you kidding me? We were previously forecasting $3.7B in EBITDA in 2023!!??,” said Wieczynski.

Caesars Stock Becoming Debt Reduction Story, Too

It’s been less than a year since Eldorado Resorts purchased “old Caesars,” creating the largest domestic casino operator in the process.

While analysts fawned for the scale born out of the merger, cost-cutting opportunities, and sports betting potential, there were concerns that “new Caesars” could be hindered by a heavy debt burden. The operator had $15 billion in liabilities at the end of last year. But due to improving margins and the Las Vegas rebound, its leverage targets are moving lower.

Leverage targets continue to get moved down, as well with the company expecting to be below 5x net leverage next year, with the possibility of getting down closer to 4x,” said Wieczynski.

The analyst adds that the forecast doesn’t include asset sales, and as 5x leverage is eclipsed to the downside, Caesars stock could become appealing to a broader swath of investors. On the conference call, CEO Reeg said the company isn’t planning to sell a Las Vegas casino until next year.

Momentum Taking Shape

Over the course of the gaming industry earnings season, it’s been a common refrain from operators that March was a strong month. But analysts and investors want to know if the momentum is carrying over into the current quarter. Caesars is among the companies that say, “Yes.”

“Management continues to highlight a strong margin expansion story and internal expectations for faster Vegas recovery compared to Street expectations,” said Macquarie analyst Chad Beynon in a note.

“A successful integration of the US ops will further enhance CZR’s long-term margin profile in online sports betting/iGaming, which management has indicated is already running profitably. For now, we expect the company to achieve ~10%market share, which we acknowledge could be conservative, given what MGM has been able to achieve with their database,” said the analyst.