Caesars Stock Could Be a Double in the Making

Posted on: October 3, 2022, 06:15h. 

Last updated on: October 5, 2022, 05:25h.

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

Caesars Entertainment (NASDAQ: CZR) stock lost nearly two-thirds of its value year-to-date and needs to more than triple to reclaim its 52-week high. Despite those ominous statistics, some market observers believe there’s considerable upside potential in shares of the Harrah’s operator.

Caesars Stock
Caesars Palace Las Vegas, seen at night, above. Caesars stock has significant upside potential. (Image: CNN)

The S&P 500 is coming off its third consecutive quarterly loss, implying there are opportunities for risk-tolerant investors to scoop up battered names at compelling valuations. Some of those, including Caesars, offer dramatic upside potential based on recent closes relative to price targets.

CNBC Pro screened the S&P 500 for stocks that are well liked by analysts (buy ratings from at least 60% of those covering them) and that could rally (upside to average price target of more than 60%),” according to the network.

Fifteen members of the benchmark domestic equity gauge made the list, but Caesars stock leads the way in terms of potential upside at 128.1% to its average price target. The next closest name on the list offers 89.3% from current levels to its consensus price objective.

Las Vegas Could Lift Caesars Stock

Caesars is the second-largest operator on the Las Vegas Strip behind MGM Resorts International (NYSE: MGM). That status is important to investors because Nevada is proving to be one of the steadiest gaming markets in the world.

While Las Vegas visitation remains about 9% below 2019 levels, spending per visit is running approximately 40% ahead of levels seen in the last year before the emergence of the coronavirus pandemic. Caesars generates 45% of its total sales on the Strip.

Another point in favor of the Cromwell operator is that its iGaming and sports wagering unit is nearing profitability. Even with the arrival of football season, it appears Caesars Sportsbook is keeping promotional spending in check — something analysts and investors have been clamoring for.

Additionally, Caesars is leveraging football season for new revenue-generating opportunities at its Strip venues, among other properties.

Debt Still an Issue with Caesars Stock

Investors are right to ponder why Caesars stock is struggling. At the same time, Strip spending and visitation trends are robust, and the same is true for much of the operator’s extensive regional portfolio.

A significant part of the stock’s 2022 struggles likely boils down to the gaming company’s sizable debt burden, which stands at $13.7 billion. Owing to a junk credit rating, Caesars paid $2.3 billion in interest expense over the past reporting year — a negative in any environment, but even more so when interest rates are rising.

The gaming company’s interest expenses are declining through various asset sales and other moves. Still, it may need to consider divesting a Strip asset to spur more excitement among investors about its liability reduction efforts.