Caesars Draws Some Rave Wall Street Reviews Following First Earnings Report

Posted on: August 7, 2020, 01:05h. 

Last updated on: August 7, 2020, 03:04h.

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

Caesars Entertainment (NASDAQ:CZR) delivered its first earnings update as the largest US gaming company Thursday after the close of US markets. As expected, the June quarter numbers were dreadful because of the coronavirus shutdown, prompting analysts to focus more on management commentary.

First New Caesars Earnings Draw Analyst Raves
Caesars Palace Las Vegas, seen here, may be slow for a while, but analysts like the opportunity with the new Caesars stock. (Image: Richard Brian/AP)

Some members of the sell-side community liked what Caesars CEO Tom Reeg and other executives had to say on yesterday’s conference call. The post-earnings chatter on the name is broadly positive, with price forecasts well in excess of current levels.

On the call, Reeg created some buzz in discussing the new Caesars broad online casino and sports wagering business, noting that a decision on that segment could be revealed before the end of 2020, while saying it could generate $600 million to $700 million in revenue next year.

We believe investors misunderstand CZR’s value regarding iGaming and sports betting,” said Macquarie analyst Chad Beynon in a note to clients today. “With a strong economic partnership with William Hill and 100% economics for iGaming, we believe CZR’s 60 million loyalty members could be worth ~$19 per share.”

Due to a long-standing relationship with the old Eldorado Resorts — the company that acquired Caesars — William Hill will run the new Caesars’ sportsbooks. Caesars is entitled to 50 percent of earnings before interest, taxes, depreciation and amortization (EBITDA) under that agreement, according to Beynon.

Meeting Las Vegas Challenges

The new Caesars has an extensive portfolio of regional casinos, providing some buffer against the current headwinds operators are facing in Las Vegas. In Sin City, the company runs six integrated resorts, a trait some investors view as a drag at a time when many would-be visitors are skittish about traveling because of the COVID-19 pandemic. Some analysts see things differently.

The LV assets’ performance is exceeding our expectations, with every reopened property generating positive EBITDA and solid hotel occupancy,” said Stifel analyst Steven Wieczynski, long a noted Caesars bull.

Wieczynski, who believes the new Caesars can eventually become a $100 stock, notes investor sentiment on Las Vegas is “incredibly negative,” and that’s weighing on the stock. However, he said Reeg and team delivered a compelling case for the strength of the Strip portfolio.

On yesterday’s conference call, Reeg said it’s still in the plans to sell a Strip asset, though that timeline could be extended to 18 months from the original forecast of a year after closing the takeover.

Focusing on Cash

Something investors will be clamoring for going forward is Caesars rejuvenating free cash flow (FCF) while reducing a debt burden that stood at $14.7 billion at the end of June.

Beynon, the Macquarie analyst, said he’s confident management can drive $800 million in cost savings, and that there are deleveraging opportunities in the form of selling a Strip venue, as well as three gaming properties in Indiana.

Wieczynski, the Stifel analyst, said its possible management exceeds the $800 million cost-cut target and that it’s encouraging $10 or more in per share FCF is in play.

He reiterated a “buy” rating on Caesars stock, with a $63 price target, while Beynon reissued an “outperform” call with a $60 forecast. The shares closed around $37 today.