Posted on: October 16, 2024, 05:53h.
Last updated on: October 16, 2024, 05:53h.
Caesars Entertainment (NASDAQ: CZR) was one of the most heavily shorted stocks in the S&P 500 in the month of September, according to new data.
At the end of last month, short interest in Caesars as a percentage of the stock’s total float was 7.04% — good for 20th among all members of the benchmark domestic equity gauge. The Harrah’s operator is the only gaming name among the most shorted S&P 500 equities, though there are some others with ties to Las Vegas, namely Southwest Airlines (NYSE: LUV).
Bearish traders are playing a dangerous game with Caesars as the stock is higher by almost 11% over the past month and more than 22% over the past 90 days. Regardless of industry, heavily shorted stocks can rapidly change directions, forcing traders holding bearish bets to cover those positions, which only fans a rally’s flames.
Traders aren’t required to disclose why they’re short a particular stock, but in the case of Caesars, the elevated bearish positioning could be a sign of market participants betting on a pullback in consumer spending or expectations that visitation to Las Vegas Strip and regional casinos could falter over the near-term. Additionally, traders short Caesars may be using those positions as hedges on bullish bets on other consumer discretionary stocks.
Rough Time to Short Caesars
As mentioned previously, Caesars stock has been performing well in recent weeks, which could pose challenges for those who are short on the shares.
Adding to those risks is the fact that the gaming stock’s resurgence is supported by fundamentals. For example, the Horseshoe operator is one of the most indebted gaming companies, meaning it’s positively levered to lower interest rates. The Federal Reserve cut borrowing costs by 50 basis points last month. Earlier this month, Caesars announced a surprise $500 million share repurchase program and the sale of $1 billion in bonds to eliminate near-term maturities.
Supporting the argument that fundamentals are driving Caesars’ recent rally is management’s commentary indicating no significant decrease in consumer expenditures in Las Vegas or the regional markets where the operator has gaming venues.
There are also talks that the operator could focus on selling assets in 2025 to raise cash for further reducing debt and potentially returning more capital to shareholders. Any related news could boost the stock further, posing additional risks to short sellers.
Analysts Optimistic about Caesars
Analysts may not always be right, but when they are, short positions could be at risk. This is relevant to those bullish on Caesars because Wall Street generally has a positive outlook on the casino operator. Out of the 18 analysts covering the stock, 14 rate it as a “buy” or “strong buy,” with a consensus price target suggesting nearly 21% upside from current levels.
Riley analyst David Bain is one of the proponents of Caesars’ efforts to reduce debt and increase profitability in the digital unit.
“CZR’s confirmed significant potential value creation from lower interest rates combined with lower forward capex, additional cash contributions from the sale of non-core assets, and digital and Las Vegas growth next year,” wrote Bain in a recent note. “Debt paydown remains CZR’s top priority, though it made clear that share repurchases remain compelling at current market prices/valuation.”