Major Capital Remains Optimistic about Caesars Entertainment's Shares
Caesars Entertainment (NASDAQ: CZR) shares have dropped 24.64% so far this year while the S&P 500 has surged ahead by 7.57%. However, some stakeholders on the sell side are optimistic about the casino operator's future.
Recently, 1 Main Capital's founder and portfolio manager, Yaron Naymark, revealed in a letter to clients that the hedge fund created a position in Caesars during the first quarter, making it one of their top five investments. One of the reasons for 1 Main's enthusiasm for Caesars is the company's interactive division, which encompasses online sports betting.
In the digital space, CZR has allocated considerable funds toward marketing and promotions to attract customers over the past three years. Though cumulative costs in this area exceeded $1 billion in 2021 and 2022, the digital business finally turned a profit in 2023, and management anticipates it will reach $500 million in annual earnings before interest, taxes, depreciation, and amortization (EBITDA) within the next few years.
When Caesars announced its first-quarter results last week, it revealed short-term setbacks due to bad luck on the Super Bowl and March Madness. Nevertheless, it remains positive about the long-term prospects of its interactive business.
1 Main Capital Is Bullish on Caesars' Proprietary Growth Initiatives
Similar to its rivals, Caesars is in the midst of a substantial capital expenditure cycle, involving the introduction of new venues and enhancements to existing gaming properties.
Caesars Danville in Virginia opened a little over a year ago, and the company is currently refurbishing Harrah's New Orleans under the Caesars Palace brand. Moreover, the gaming firm is investing in upgrading casino hotels in Atlantic City and its New Orleans sites. Naymark anticipates that these endeavors could yield long-term benefits.
"CZR has invested more than $1 billion into new and existing growth projects," stated Naymark. "This includes $650 million for the development of a new venue in Danville, VA. It also includes $400 million for enhancements to its Atlantic City properties and $400 million for upgrades to its New Orleans locations. Typically, the company anticipates a 15%+ return on such growth projects. However, they expect Atlantic City to fall short of that figure."
During a recent earnings call, Caesars CEO Tom Reeg implied that some "non-core" gaming venues that don't generate substantial amounts of free cash flow could be sold. These sales could transpire at some point in 2023.
Free Cash Flow Generation: A Crucial Factor in Caesars' Valuation
The potential for free cash flow (FCF) has been a key focus in evaluating Caesars for several years. With a current FCF yield of 12% and FCF expanding, certain analysts view the shares as undervalued.
1 Main Capital's Naymark is optimistic about Caesars' long-term FCF trajectory and its potential impact on share value.
"Within a few years, CZR will be able to produce $2 billion in annual FCF, or $9 per share," predicted the investor. "At this stage, the digital business will still be expanding rapidly. As this occurs, I believe that the stock will surge beyond its present levels."
Read also:
- Remaining contenders down to two in DFB's struggle versus Brazil.
- Law enforcement agencies in various metropolises plan expansive measures for May 1.
- Berlin Transport Senator Schreiner Steps Down over Doctorate Issues
- The Next Development in the DAZN/DFL Billion Euro Controversy
Source: www.casino.org
