Caesars Could Opt for Share Repurchases Instead of Immediate Acquisitions
Caesars Entertainment (NASDAQ: CZR) might look into share buybacks if its stock price remains stagnant. Additionally, the casino conglomerate is exploring potential mergers and acquisitions that may necessitate the issue of new shares.
During a conversation with J.P. Morgan analyst Joseph Greff at the J.P. Morgan Gaming, Lodging, Restaurant & Leisure Management Access Forum on Thursday, Caesars CEO Tom Reeg weighed in on these topics. While emphasizing that there are "plenty of chances" available in the market for acquisitions, Reeg asserted that the company has no immediate plans to issue stock for the purpose of making deals.
This news may come as a relief to investors, given that Caesars stock has declined by 16.2% so far this year. The production of new shares, regardless of their purpose, could lead to the dilution of existing shareholders.
Reeg informed Greff that the company plans to use the free cash flow from traditional income sources as well as the opening of a new casino in Danville, Virginia, and the rebranding of Harrah's New Orleans to the Caesars Palace brand to reduce debt. Since last year, Caesars has been diligently working to diminish its outstanding debt, which stood at $12.4 billion at the end of last year.
The Potential of Another Las Vegas Grand Prix
During the same conversation, Reeg also discussed the possible return of the Las Vegas Grand Prix. The Formula One (F1) event took place in Las Vegas last November but was not as beneficial for Caesars as initially expected. Unlike the Aria, Bellagio, Caesars Palace, Cosmopolitan, and Wynn resorts, which catered to a higher-end clientele and saw positive impacts, other Caesars properties, such as Flamingo, Harrah's, and the Horseshoe, experienced relatively minimal benefits.
Despite not generating the desired cash flow, Reeg anticipates "better profitability" from the second Las Vegas Grand Prix due to "a primary beneficiary of the market-wide objective to better align the event with mass-market participants."
According to Reeg, the company experienced some benefits from the Super Bowl in February. However, he noted that certain obstacles, specific to events, are hampering the performance in March. There has also been below-average table hold in January and February.
Encouraging Online Casino Performance
The renaming of Caesars' online casino to the Caesars Palace brand in August 2022 has yielded favorable results. Since then, the company has surpassed its internal GGR estimates for each month. Reeg predicted a 50% increase in yearly growth in February, with revenue reaching $40 million.
Although Reeg didn't mention any specific states joining the online gambling scene, he noted that the introduction of a single new state would generate the same amount of cash flow as two or three others in the realm of online sports betting.
Additionally, the CEO revealed that Caesars aims to launch a second online brand this year to boost client acquisition and engagement within its online ecosystem.
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