Eldorado Resorts Stock Becomes Hedge Fund Favorite Ahead of Caesars Deal Completion

Posted on: October 29, 2019, 10:35h. 

Last updated on: October 29, 2019, 11:14h.

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

Eldorado Resorts, Inc. (NASDAQ:ERI) has already made waves in the gaming industry this year by announcing a $17.3 billion takeover offer for Caesars Entertainment Corp. (NASDAQ:CZR).  It’s news that may have prompted some hedge funds to embrace the regional gaming company’s shares.

Eldorado Resorts is luring hedge fund buyers as it nears completion of its Caesars acquisition. (Image: LinkedIn)

Gaming stocks have histories of being hedge fund favorites, a trend that extended to Eldorado in the second quarter, indicating some managers were buying the stock in anticipation of the Caesars deal and after it was announced on June 24.

As of June 30, 37 hedge funds held long positions in Eldorado shares, a 19 percent increase from the end of the first quarter, according to Insider Monkey data.

Following the formal announcement of the acquisition offer, Eldorado stock was drubbed on concerns the company was paying too much for the Caesars Palace operator, with some analysts noting the assumption of $8.8 billion in Caesars debt would impair the regional gaming firm’s ability to generate free cash and repurchase its own stock.

As a result, Eldorado shares shed nearly a third of their value from June 24 through early September. But the stock has surged about 25 percent off last month’s lows.

Examining Eldorado Ownership

At the end of the second quarter, four of the top ten largest institutional investors holding shares of Eldorado were hedge funds. That group was led by HG Vora Capital Management, a firm with stakes in several other gaming companies.

1060 Capital Management, a small Chicago-based hedge fund, counted Eldorado as its largest individual position at the end of June. That investment manager, which also owns positions in several casino and gaming operators, held 228,000 Eldorado shares as of June 30, representing 13.74 percent of the firm’s equity portfolio.

Two hedge funds – HG Vora and Park West Asset Management – have Eldorado positions worth in excess of $100 million. Data indicates Park West has been a recent buyer of the stock, boosting its position in the name by 25 percent in recent months.

That firm isn’t alone in doing so. Hedge fund ownership of Eldorado shares has more than tripled over the past four years, according to Insider Monkey data.

Bullish Musings

Hedge funds aren’t alone in their enthusiasm for the regional gaming company’s stock. With Wall Street having digested the price the company will pay for Caesars, analysts are bullish on Eldorado stock heading into 2020, with one recently noting it’s a “must-own” gaming stock.

Shareholders from both companies meet on Nov. 15 to vote on the transaction, which will create the largest domestic gaming company in terms of number of casinos. Even with Eldorado’s recent asset sales and speculation that more are to come, the combined company will own more than 60 US gaming properties when the deal closes next year.

The consensus price target on Eldorado stock is $59, or 31.11 percent above where the shares currently reside.