Published on: January 3, 2025, 05:49h.
Last updated on: January 3, 2025, 05:49h.
There is speculation that Caesars Entertainment (NASDAQ: CZR) may take action to extract value from its digital operations, including Caesars Sportsbook.
In a recent report, Deutsche Bank analyst Carlo Santarelli suggested that Caesars management is frustrated by the undervaluation of its digital business, which has been moving towards profitability. This dissatisfaction could prompt action, although the nature of that action remains uncertain.
Santarelli’s analysis indicates that if Caesars’ digital unit meets or exceeds the 2025 revenue forecast of $352 million and trades at 12.5x EBITDA, it could be valued at $20.75 per share, significantly below DraftKings (NASDAQ: DKNG). This underscores the potential undervaluation of Caesars’ online segment, given its current stock price of $32.51.
If the digital business is valued at this level, it suggests that Caesars’ traditional operations are undervalued in terms of EBITDAR.
With more than half of the EBITDAR generated from wholly owned assets, the trading multiple appears artificially low, reflecting a market discount applied to the sum-of-the-parts approach,” noted Santarelli.
According to Santarelli, Caesars Digital could be worth $4.4 billion, potentially creating shareholder value and reducing the company’s debt burden through a corporate transaction.
Speculation Grows on Caesars Digital
Santarelli’s remarks on unlocking value from Caesars’ digital operations followed Truist Securities analyst Barry Jonas’ suggestion of a possible spinoff of the unit.
While Santarelli did not explicitly mention a spinoff, it is seen as a viable means for Caesars to maximize value from its iGaming and online sports betting business. Selling to another gaming company may not be feasible, as Caesars might not retain any significant interest in the business, and its current market share may not attract a buyer at the desired price.
In addition, the limited expansion of iGaming legislation could deter potential buyers, despite Caesars’ strong position in the market.
Long-Standing Rumors Surround Caesars Digital
Rumors about Caesars’ online operations have persisted for years, with the company considering a spinoff while also expressing interest in maintaining full ownership.
A spinoff could allow Caesars to retain some equity in the online segment, but it may result in lower post-transaction value, potentially serving as a hedge against the risks of relinquishing full control in a high-growth, low-margin industry.
Given the evolving landscape of iGaming regulations, operators may prefer full control over their digital units as more states consider legalization.