Caesars Stock Tipped as Tapering Play

Posted on: November 4, 2021, 10:47h. 

Last updated on: November 4, 2021, 11:50h.

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

Caesars Entertainment (NASDAQ:CZR) stock could be one way for investors to deal with the Federal Reserve scaling back and ultimately ending its bond-buying program.

Caesars Entertainment
Caesars Entertainment, seen above, could be a tapering winner. The Federal Reserve is getting close to reducing bond-buying. (Image: Getty Images)

That scenario, also known as tapering, is now a foregone conclusion. The central bank recently said it will begin paring its $120 billion in monthly bond purchases this month with the aim of ending the effort in the middle of 2022. The Fed unleashed another bond-buying regime in the early days of the coronavirus pandemic to prop up fixed income markets.

With the end of that bond purchasing regime drawing near, some market participants are fretting about a sequel to the 2013 “taper tantrum.”  That’s the episode when the Fed announced the end of a bond-buying program commenced in the aftermath of the global financial crisis. Equities tumbled in mid-2013 on news of the looming taper. But some names endured and performed well, including Caesars.

The 2013-2014 … taper period is a useful, but imperfect, analog for the likely upcoming taper,” Ned Davis Research’s Ed Clissold said in a recent report.

CNBC ran a screen for stocks that held up during with the 2013 taper tantrum, with the qualifiers of 20 percent upside to current price targets and at least 70 percent of analysts covering the stock rating it a “buy.” Caesars was one of 11 that made the list.

Caesars Different Today

Market participants frequently acknowledge historical precedent and trends. But tapering is different, because the aforementioned 2013 scenario is the only prior example. That could be a sign there are no guarantees the upcoming tapering will mirror the prior episode, or if there will be a “tantrum” at all.

Specific to Caesars, the gaming company looks far different today than it did in 2013. It’s now the largest domestic casino operator by number of venues, following the 2020 takeover by Eldorado Resorts that created “new Caesars.” The Flamingo operator is one of Wall Street’s favorite gaming equities, a status accrued by management’s reputation for managing margins and generating free cash flow, among other factors.

The operator is the second-largest on the Las Vegas Strip, and has a deep portfolio of regional assets, both of which are setting quarterly records. It’s also an emerging player in the fast-growing iGaming and sports betting segments. Sports wagering wasn’t legal outside of Nevada during the prior tapering scenario.

Caesars stock is up 49 percent year-to-date. It offers 30 percent upside to the consensus price target, and 73 percent of the analysts covering rate it a “buy.”

Tapering History for Caesars Stock

One factor in favor of Caesars against a tapering backdrop is that it’s classified as a consumer discretionary name. That sector was one of the top three performers during the 2013 taper tantrum.

Separately, the company said earlier this week it could have as much as $5 billion in cash to deploy next year. Much of that will go toward reducing debt, and that it’s eyeing a sale of one of its Las Vegas Strip venues in early 2022.

Caesars is the only gaming equity on the CNBC list of potential taper winners.