Shares of Caesars Entertainment (NASDAQ: CZR) popped early Monday after the casino operator delivered a bullish, advanced look at its fourth-quarter earnings.
The company said it expects revenue for the December quarter to come in at $2.81 billion to $2.83 billion, ahead of the $2.78 billion analysts estimated. Caesars’ net loss is forecast to be $129 million to $257 million while earnings before interest, taxes, depreciation, and amortization (EBITDA) is estimated to be $947 million to $967 million, easily topping the $581 million posted in the same period last year.
According to a Form 8-K filing with the Securities and Exchange Commission (SEC), the Flamingo operator is expecting fourth-quarter EBITDA from its Las Vegas Strip venues to be $534 million to $540 million, while EBITDA from regional properties is estimated to be $440 million to $446 million. Caesars is the second-largest operator on the Strip.
We believe 4Q22E demonstrated high occupancy and room rate, which has continued into 1Q23E. As previously written, we see solid potential upside to CY23E Las Vegas segment YoY EBITDA consensus of -1% year-over-year,” wrote B. Riley analyst David Bain in a note to clients today.
Bain cited recovery in convention bookings, the return of international and older tourists, and events, such as the Las Vegas Grand Prix and the opening of the MSG Sphere, as potential 2023 for Caesars’ Strip properties. Bain rates the stock a “buy” with a $102 price target, implying it can more than double from current levels.
Caesars Digital Unit Nearing Profitability
Caesars’ digital unit, which includes Caesars Sportsbook, is closing in on profitability. In fact, if not for Jim “Mattress Mack” McIngvale’s record-setting haul on the Houston Astros winning the 2022 World Series, the division would have been profitable in the fourth quarter.
The gaming company forecast a fourth-quarter digital loss of $5 million, but that’s well ahead of the $25 million loss Wall Street expected.
Adjusted for CZR’s high-profile bet loss from ‘Mattress Mack,’ we calculate CZR would have posted +~$25M of Digital EBITDA,” added Bain. “Combined with continued EBITDA benefits to its land-based business, we believe online has an opportunity to fuel CZR’s forward valuation multiple versus being a drag on it. We believe CZR’s Digital EBITDA may be flat this year versus consensus of ($50M).”
The outlook for lower losses and potential profitability in the sportsbook unit is vital for Caesars at a time when rivals are either profitable or close to getting there.
Caesars Debt Sale
Along with the earnings pre-announcement, Caesars revealed that it’s selling $1.25 billion in senior unsecured notes due in 2030, and that it’s gaining access to a new $1.75 billion senior secured term loan facility.
Riley’s Bain expects those proceeds will be used to pay off a senior loan maturing in 2024, which had approximately $3.42 billion outstanding as of December.
“Essentially, we expect the rate on debt to be comparable with an extended maturity,” according to the analyst.
While Caesars is buying time to pay down the debt, it’s beneficial to the company that it’s not incurring a higher interest rate to do so.
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