Caesars CEO Reeg Says No Involvement with Penn, Eyes Buybacks

Posted on: July 31, 2024, 02:49h. 

Last updated on: July 31, 2024, 02:49h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Caesars Entertainment (NASDAQ: CZR) CEO Tom Reeg told analysts the company isn’t “even tangentially involved” in the takeover scuttlebutt that’s recently surrounded rival Penn Entertainment (NASDAQ: PENN).

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Caesars CEO Tom Reeg in a 2021 CNBC interview. He said the company is not interested in Penn Entertainment and doesn’t want to use its currently depressed stock to fund acquisitions. (Image: CNBC)

Reeg made the comments Tuesday evening on his company’s second-quarter earnings conference. In response to a question from Wells Fargo analyst Daniel Politzer, the Caesars chief executive officer noted that while predecessor firm Eldorado Resorts frequently used equity for acquisitions that fueled growth, he’s not inclined to look at the option today because Caesars stock has struggled.

I’m not an issuer of stock at $36 wherever it was today (Tuesday). We’re going to be a significant even more significant free cash flow producer as these as the project spend runs down,” said Reeg.

At this writing, shares of Caesars are up 13% today, but the stock is down 30% over the past year, making it one of the worst-performing gaming names over that period.

Reeg Not Going to Give Away Caesars Stock

Speculation about Penn being a takeover target dates back to late when one of its investors suggest the company should consider a sale. Subsequent rumors to that effect have centered around Boyd Gaming  (NYSE: BYD) potentially making a move on Penn, but neither regional casino operator has commented to that effect.

With Caesars already having exposure to many of the markets in which Penn operates and the former focusing on reduce, Reeg is likely shooting straight when it comes to his company having no involvement in the purported Penn sweepstakes. He’s also adamant that he’s “not going to give our stock away.” Rather, he’s focusing on ways to eventually return capital to shareholders when capital spending on new projects falls off the operator’s to-do list.

“So that will open up a leg of shareholder returns so you should expect us to start buying in some of our stock. If the stock moves to a different neighborhood that can change,” Reeg said.

As more casino operators have initiated and increased quarterly dividends and boosted share repurchase, Caesars has done neither as it’s worked on trimming one of the largest debt burdens in the industry and opening new regional casinos in Nebraska and Virginia.

Lower CapEx, Interest Rates Could Help Caesars

Caesars’ shareholder rewards efforts could be boosted by a reduction in capital expenditures and interest rates, the latter of which could arrive as soon as September.

“A significant portion of CZR’s project capex rolls off this year, Digital earnings before interest, taxes, depreciation, and amortization (EBITDA) should accelerate, and potential non-core asset sales (we believe, the Promenade) come closer to fruition,” wrote B. Riley analyst David Bain in a note to clients today. “Given a more benign interest rate environment — we calculate $60 million of interest savings/new FCF for every 100 basis point drop drop in rates — we believe CZR’s shares can sustain upward momentum from current valuation levels.”

Reeg previously expressed a willingness to sell “non-core” casinos, a view he reiterated on Tuesday’s call.