Caesars price target cut due to limited F1 impact
CBRE analyst John DeCree lowered his price target on Caesars Entertainment Inc. (NASDAQ: CZR ), citing the negative impact of recent collective bargaining negotiations with the Culinary Alliance and the operator's move from Las Vegas in November. Gains from the Grand Prix are limited.
In a new note to clients, DeCree forecast a price range of $72 to $67 for Casino stock. This new estimate implies upside of 52.2% from current levels, with the stock struggling to start 2024. Caesars shares have fallen 4.15% over the past week and are down 6.44% year to date.
While November's Formula One (F1) race has paid dividends for some casino resorts on the Las Vegas Strip, the positive impact on Caesars may be limited to Caesars Palace.
"CZR's other Las Vegas portfolio is more mid-tier and may not capture as much international baccarat volume, favoring properties such as Bellagio, Aria, Cosmopolitan and Wynn," DeCree wrote.
Translation: Many high rollers heading to Las Vegas for the tournament may not have visited Caesars properties such as the Flamingo, Harrah's and The Horseshoe. Aria, Bellagio and Cosmopolitan are operated by MGM Resorts International (NYSE: MGM).
Analyst Pares Caesars Cash Flow Estimates
Due to the above factors, DeCree also lowered Caesars' fourth-quarter cash flow forecast to $945 million from $991 million. The Las Vegas Strip and the Boardwalk in Atlantic City, N.J., accounted for $30 million in declines as Caesars Group's casino-hotel triumvirate struggles to keep pace with market leader Borgata, Hard Rock Hotel Atlantic City and Ocean Resort Casino .
Another $15 million of the cash flow estimate came from Caesars Digital, where DeCree said fourth-quarter results for sports bettors were encouraging. Analysts noted that similar trends could hurt other sportsbooks' results.
DeCree expects Caesars to generate $3.9 billion in cash flow this year, slightly below the consensus forecast of $4 billion. He added that Caesars Digital may see some benefit, with sales expected to rise 27%, and savings that could result from the operator ceasing some costly marketing partnerships.
Caesar Bonds May Contain Clues
While Caesars shares are struggling heading into 2024, the company's debt levels could provide a positive clue for investors. As DeCree noted, the operator's oldest debt recently yielded 9%, but has since dropped to 6.5%. When prices rise, bond yields fall.
The spread between credit and equity markets' valuations of the company has widened, creating an attractive buying opportunity for the stock," DeCree noted. "Credit markets are more optimistic about the company than they were three months ago. Positively, this is likely due to lower base rates and the resilience of casino cash flow in the face of ongoing inflation, declining digital profitability and ongoing debt repayments. "
Caesars is widely regarded as one of the industry's most high-profile deleveraging stories. The company had $12.29 billion in outstanding debt at the end of the third quarter, well below the total debt it had in mid-2020 when Eldorado Resorts completed its acquisition of Old Caesars. The operator expects to reduce its debt by at least $1 billion this year.
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Source: www.casino.org
