Caesars Stock Draws Mixed Reviews from Analysts

Posted on: January 10, 2024, 03:45h. 

Last updated on: January 11, 2024, 11:44h.

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

Caesars Entertainment (NASDAQ: CZR) stock lagged the broader market in 2023, and is scuffling to start 2024, as highlighted by a 3.58% decline since the start of the year. While the name isn’t controversial, there is division among analysts covering the casino equity.

Caesars hedge funds
Visitors entering Caesars Palace Las Vegas. The operator’s stock is a hedge fund favorite. (Image: David Paul Morris/Bloomberg)

Recent sell-side commentary on the Horseshoe operator confirms split views on the stock. For example, Caesars was one of four gaming equities that saw price targets trimmed by Morgan Stanley on Tuesday. The research firm pared its price forecast on the Flamingo operator to $45 from $48, which implies modest downside relative to Wednesday’s close at $45.36.

Conversely, Morgan Stanley is more constructive on MGM Resorts International (NYSE: MGM), Caesars’ biggest rival on the Las Vegas Strip. The bank expects that stock to post gains this year, and it could be the preferred avenue for Sin City exposure over Caesars.

Of the 16 analysts covering Caesars, 12 rate it the equivalent of a “strong buy” or “buy,” while four rate it “hold.” The consensus price target of $61.94 implies potential upside of 36.55% from current levels. But that also implies room for downward revisions.

F1’s Benefits Limited for Caesars Stock

The Las Vegas Grand Prix, which took place last November, was a boon for select Strip casino resorts, including Caesars Palace.

However, JPMorgan analyst Joseph Greff noted in a recent report to clients that most of the event’s benefits were accrued to higher-end Strip properties, such as those operated by MGM and Wynn Resorts (NASDAQ: WYNN). On the other hand, mid-tier venues, which include most Caesars’ Strip properties, didn’t derive significant perks from the Formula One (F1) race.

Greff lowered his price forecast on Caesars stock to $54 from $55, citing other factors beyond the Strip. The analyst said construction at Harrah’s New Orleans, which is being converted to a Caesars Palace, created some disruptions in the second half of last year.

That’s a temporary issue which will soon be resolved. Perhaps of more concern to investors is Caesars’ lethargy in Atlantic City, N.J. On the Boardwalk, Caesars’ three venues have been unable to mount a serious threat to the area’s trio of leaders, MGM’s Borgata, Hard Rock Atlantic City, and Ocean Casino Resort.

Some Bullish Commentary

The entirety of the sell-side isn’t bearish or neutral on shares of Caesars. Count JMP Securities analyst Jordan Bender among those bullish on the shares. In a recent note, Bender highlighted Caesars’ strong management team, which has a knack for cutting costs and generating long-term free cash flow.

More impressive, keeping a lid on excess costs has made legacy Eldorado/Caesars one of the most successful margin expansion stories over this time, highlighting its remarkable return on invested capital/synergy track record,” observed Bender.

He has a $65 price target on Caesars and believes the operator can generate free cash flow of $1.6 billion, or $7.50 a share, at some point next year.