Caesars Considers Selling Non-Essential Casinos to Decrease Debt Load
Caesars Entertainment's (NASDAQ: CZR) share prices regained some ground on Wednesday after tumbling following its earnings report the previous day. One potential reason for the rebound could be Caesars' ongoing efforts to reduce debt.
The gaming company has used its extra cash flow to cut down on its liabilities, and improving its EBITDA is part of this plan. Besides that, there are other ways a company can lessen its debt. These include selling off assets – something CEO Tom Reeg seems open to.
During the earnings conference call late Tuesday, Reeg said, "We have a variety of assets that produce little or no cash flow and are non-operating casinos that could potentially be monetized at good rates without changing our business model too much." He went on to say that the company's leverage reduction efforts aren't just limited to free cash flow.
At the end of March, Caesars had $12.436 billion in debts, which was the same as at the end of 2023. By the time the first quarter was over, the company had $726 million in available cash and $139 million in restricted cash.
No Word on Which Casinos Could Be Sold
Reeg's comments about possibly getting rid of non-core assets this year came as some people were worried that the Federal Reserve putting off interest rate cuts could be an obstacle to consolidation in 2024.
Reeg didn't mention what specific casinos Caesars might consider getting rid of. This gambling behemoth has over 50 casino hotels, including those it operates with Tribes, in 17 states and Canada. In 2022, rumors spread that Caesars was actively trying to sell the Flamingo in Las Vegas, but it never happened. And in 2023, Caesars decided not to try and sell this Strip property.
If Caesars were to sell one of its Strip hotels, it could bring in a large amount of money that it could use for debt reduction. However, Reeg didn't say this is something the company is thinking about doing.
Another possible reason for Caesars to sell off some of its casinos is that there's less demand for gaming in certain regional markets, likely due to consumers spending less. This could mean some operators might want to get rid of regional casinos, but the potential decline in prices as a result of macroeconomic headwinds could make them think twice.
Analysts Cut Expectations on Caesars
In the first quarter, Caesars fell short of Wall Street's revenue and earnings projections, leading to some less positive sentiment about the stock. Today, at least six analysts trimmed their price targets for the Horseshoe operator.
One of these analysts was Chad Beynon from Macquarie. He lowered his price forecast for the gaming stock from $64 to $58 while maintaining his "outperform" rating on the shares. Beynon believes that this year is a turning point for Caesars' digital unit, and the gaming company could produce as much as $5.40 per share in free cash flow next year.
"Although some may be concerned about values in Vegas/Regional growth, we believe Caesars' position in Vegas is strong, and we expect the story will continue to be driven by its ability to enhance Digital share and profits," Beynon wrote. "Overall, we think Caesars has an attractive risk-reward digital profile due to its large customer base, low marketing/promo intensity, and improving tech."
So Caesars is trying to get its debt under control by using free cash flow to cut down its liabilities, and it's also considering selling off certain assets – although CEO Tom Reeg didn't say exactly who's on the chopping block. Some analysts have lowered their price targets for the company, but there's still optimism about its digital division.
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Source: www.casino.org
