Date: October 9, 2024, 06:21h.
Last updated on: October 9, 2024, 06:22h.
Boosting free cash flow and reducing debt are key reasons to consider investing in Caesars Entertainment (NASDAQ: CZR). An analyst believes these factors are still relevant.
Stifel analyst Steven Wieczynski raised his price target on Caesars to $58 from $56, with a “buy” rating. He met with management during the Global Gaming Expo in Las Vegas and is optimistic about the company’s free cash flow outlook.
Management’s tone was positive, and the analyst believes the market is underestimating CZR’s long-term cash flow potential and debt reduction capabilities.
Despite some sporadic instances of consumer spending decline in certain regional markets, Caesars, like most operators with exposure to Las Vegas and regional markets, has not seen a broad-based drop in consumer spending.
Caesars Benefits from Lower Interest Rates
As one of the most indebted casino operators, Caesars stands to gain from lower interest rates, as seen from the recent rate cut by the Federal Reserve. For every 100 basis points increase or decrease in rates, Caesars could see a $60 million change in interest expenses.
With expectations of further rate cuts, Caesars could save over $90 million in interest costs in the next year, allowing for allocation of funds towards debt reduction efforts.
“Investors are concerned about Caesars’ leverage profile, especially given potential consumer behavior changes. Despite confidence in the management and assets, leverage remains a key concern,” Wieczynski added.
Caesars’ Share Repurchase Strategy
Caesars recently announced a $500 million share repurchase plan, following a $150 million repurchase in the third quarter. The company repurchased shares at discounted levels, which may have surprised some investors.
“While the share buyback may have been unexpected, with CZR shares offering mid-teens FCF yield, the decision to repurchase shares at lower levels seems strategic,” concluded Wieczynski.