Caesars Stock Could Jump as Las Vegas Occupancy Cap Fades Away

Posted on: April 4, 2022, 04:00h. 

Last updated on: April 4, 2022, 12:41h.

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

Down 18% year-to-date, Caesars Entertainment (NASDAQ:CZR) stock, like its gaming industry brethren, is slumping. However, an analyst is bullish on the casino giant on the basis that it appears the operator is moving toward eliminating occupancy restrictions at its Las Vegas Strip venues.

Caesars stock
Caesars’ Flamingo Las Vegas, seen above. An analyst says the operator has significant upside potential. (Image: Pinterest)

In a recent note to clients, B. Riley analyst David Bain reiterates a “buy” rating on Caesars, with a $183 price target. That implies that the shares can double from the April 1 close of $76.65. The analyst points out that Caesars is hiring more staff on the Strip to support robust demand. That could be a sign that the gaming company is nearing the elimination of its occupancy cap, which is a relic of the coronavirus.

With the cap eliminated, we believe CZR’s LV occupancy will trend closer to pre-COVID levels, or ~10 points higher. We calculate added occupancy equates to close to $150 million earnings before interest, taxes, depreciation and amortization, per annum,” writes Bain.

Caesars’ best recent quarter in terms of Las Vegas EBITDA was the July through September period of 2021, during which the company generated $500 million in EBITDA on the Strip. Bain says that mark could be approached as COVID-19 restrictions ease.

Incoming Cash Could Bolster Caesars Stock

Caesars is waiting on $1 billion in net proceeds from the sale of William Hill’s international operations, and is likely already in talks regarding the sale of a Las Vegas asset, according to Bain. That indicates a significant amount of cash could be flowing to the company’s coffers over the near-term.

Speculation is running rampant regarding which Strip venue Caesars will part with — Flaming, Paris, and Planet Hollywood command the bulk of the chatter. There’s also guesses as to whether or not the operator will part with the sold asset outright, or engage in a sale-leaseback. It’s clear Wall Street likes the idea, because such a transaction will help Caesars pare leverage.

“We forecast leverage of under 4x next year, ~3x when including proceeds from a proposed Strip asset sale from FY21A ending leverage of 7.3x,” said Bain.

Based on recent prices at which Strip properties changed hands, analysts speculate Caesars could command as much as $3 billion in a sale of Flamingo Las Vegas, Bally’s Las Vegas, Paris Las Vegas, and Planet Hollywood Resort & Casino.

Online Moves Applauded

Caesars said it’s dramatically reducing its traditional media spending for its online sportsbook unit earlier this year. Fortunately, that’s not affecting the operator’s market share. B. Riley’s Bain says Caesars’ share of the US domestic online sportsbook market is 14.8%, while the company controls 3.8% of US iGaming.

The analyst adds that the operator should be a significant internet casino player in Ontario, Canada, and that spending is under control.

“We note CZR’s initial marketing spend for its iCasino and OSB in Ontario is reflected in estimates, and its managed Caesar’s Windsor in Ontario and overall omnichannel approach offer strong opportunities for solid out-of-the-box market share in Ontario (versus catch up share gains in certain legacy jurisdictions),” he notes.