Caesars Entertainment (NASDAQ:CZR) stock is up 56.39 year-to-date — a performance many investors may be believe is attributable to the company’s expanding iGaming and sports wagering footprints, but it’s traditional casinos driving enthusiasm for the shares.
The operator is the second-largest on the Las Vegas Strip and has a deep portfolio of regional assets, both of which are setting quarterly, says Stifel analyst Steven Wieczysnski. In a note to clients today, the analyst reiterates a “buy” rating on Caesars stock while boosting his price target to $138 from $130. The new forecast implies upside of about 20 percent from current levels.
Following a recent meeting with Caesars management, Wieczynski notes Las Vegas and regional casinos are performing well and that’s without the benefit of convention and meeting business. However, some investors are pondering for how long top line and margin expansion is plausible as consumer stimulus fades.
Management firmly sees these concerns as overblown, highlighting that (1) the current trend in the savings rate could imply tailwinds to the consumer through 2023 and (2) their overall cost structure is predominately ‘right-sized’ by this point with any modest pockets of cost inflation likely offset by the return of the high margin group customer,” said the Stifel analyst.
The Flamingo operator is one of Wall Street’s favorite gaming equities, a status accrued by management’s reputation for managing margins and generating free cash flow, among other factors.
Asset Sale Could Be Another Spark for Caesars Stock
Amid recent Strip asset sales, include the Venetian and Sands Convention Center in March and the Cosmopolitan late last month, it’s possible Caesars opts to accelerate the timeline for divestment of one of its Las Vegas properties.
Previously, the operator said such a transaction would not occur until next year, but it’s possible the company could be motivated by the price points on recent sales. This year, speculation is swirling about the fate of Paris and Planet Hollywood, but Caesars hasn’t publicly said that those are the venues it’s prioritizing in potential sales.
“Furthermore, while management has historically indicated a sale of a Strip asset would likely follow normalization in the group segment, we think recent transactions in the market (Cosmopolitan, Venetian/Palazzo) could see management act more opportunistically to unlock value in their portfolio and drive leverage lower,” adds Wieczynski. “Given where comps have transacted, we see no reason why CZR couldn’t get as high as a low-teens multiple on one of the assets perceived to be for sale.”
The analyst adds the sale of a Strip venue should dramatically accelerate management’s efforts to delever the balance sheet.
Ahead of the Curve in Sports Betting
Data suggest Caesars newly launched online sportsbook has ground to make up against larger rivals, but it is a rising player in the space.
Caesars is using the $3.69 billion acquisition of William Hill to make a splash in iGaming and sports wagering — a move Wall Street likes because the company significantly defrayed that purchase price by selling William Hill’s international assets for $3 billion and liquidating part of the inherited NeoGames (NASDAQ:NGMS) stake. Owing to the expanse of Caesars Rewards, the industry’s largest loyalty program, the company has enviable cross-selling opportunities that could drive long-term value in next-generation gaming.
“Not only does the largest land-based rewards database present ample low cost customer acquisition opportunities, but we also expect management to explore innovative ways to unlock further value at their brick and mortar properties as well,” concludes Wieczynski. “As one example, management has already begun to utilize sports betting marketing data to drive promotional decisions at the property (those customers would effectively be treated as unrated, otherwise).”
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