Caesars Among Most Shorted S&P 500 Stocks

Posted on: October 16, 2024, 05:53h. 

Last updated on: October 17, 2024, 09:57h.

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

Caesars Entertainment (NASDAQ: CZR) was one of the most heavily shorted stocks in the S&P 500 in September, according to new data.

Caesars hedge funds
Visitors entering Caesars Palace Las Vegas. Short interest in the stock remains elevated despite a recent rally. (Image: David Paul Morris/Bloomberg)

At the end of last month, short interest in Caesars as a percentage of the stock’s total float was 7.04% — good for 20th among all members of the benchmark domestic equity gauge. The Harrah’s operator is the only gaming name among the most shorted S&P 500 equities, though there are some others with ties to Las Vegas, namely Southwest Airlines (NYSE: LUV).

Bearish traders are playing a dangerous game with Caesars as the stock is higher by almost 11% over the past month and more than 22% over the past 90 days. Regardless of industry, heavily shorted stocks can rapidly change directions, forcing traders holding bearish bets to cover those positions, which only fans a rally’s flames.

Traders aren’t required to disclose why they’re short a particular stock, but in the case of Caesars, the elevated bearish positioning could be a sign of market participants betting on a pullback in consumer spending or expectations that visitation to the Las Vegas Strip and regional casinos could falter over the near term. Additionally, traders short Caesars may be using those positions as hedges on bullish bets on other consumer discretionary stocks.

A Rough Time to Be Short on Caesars

As noted above, Caesars stock has been on a tear in recent weeks, potentially making life difficult for those short the shares.

Adding to those risks is the fact that the gaming stock’s resurgence is supported by its fundamentals. For example, the Horseshoe operator is one of the most indebted gaming companies, meaning it’s positively levered to lower interest rates. The Federal Reserve cut borrowing costs by 50 basis points last month. Earlier this month, Caesars announced a surprise $500 million share repurchase program and the sale of $1 billion in bonds to eliminate near-term maturities.

Bolstering the case for the fundamentals buoying Caesars’ recent rally is commentary from management indicating there’s been no material pullback in consumer expenditures in Las Vegas or in the regional markets in which the operator has gaming venues.

There’s also been chatter that the operator could prioritize asset sales in 2025 as an avenue for raising cash to further reduce, and possibly return, more capital to shareholders. Related headlines would likely galvanize the stock, posing further risk to short sellers.

Analysts Bullish on Caesars

Analysts don’t always get it right, but when they do, short positions can be endangered. That’s relevant to Caesars bulls because Wall Street is broadly constructive on the casino operator. Of the 18 analysts covering the stock, 14 rate it the equivalent of a “buy” or “strong buy” and their consensus price target implies upside of almost 21% from current levels.

Riley analyst David Bain is among those with positive views on Caesars’ debt reduction efforts and rising profitability in the operator’s digital unit.

“CZR’s confirmed significant potential value creation from lower interest rates combined with lower forward capex, additional cash contributions from the sale of non-core assets, and digital and Las Vegas growth next year,” wrote Bain in a recent note. “Debt paydown remains CZR’s top priority, though it made clear that share repurchases remain compelling at current market prices/valuation.”