Caesars Remains Committed to Reducing Debt

Posted on: November 1, 2023, 03:24h. 

Last updated on: November 1, 2023, 08:07h.

Caesars Entertainment (NASDAQ: CZR) reported impressive third-quarter results, with its Caesars Digital unit achieving a profit of $2 million, a significant improvement from the previous year’s loss of $38 million. The company also made progress in reducing its debt burden, resulting in positive outcomes for its overall financial health.

Caesars Debt
Caesars Palace on the Las Vegas Strip. The operator continued reducing debt, but analysts are tepid on the stock. (Image: Getty Images)

Thanks to record adjusted EBITDA of $1.04 billion, a growth from $1.01 billion in the same period last year, Caesars Entertainment managed to reduce its liabilities substantially. As of September 30, the company’s outstanding debt dropped to $12.45 billion from $13.08 billion at the end of 2022. These ongoing efforts to minimize debt are likely to please investors who have been concerned about the company’s financial position.

“We see the $7.2 billion in free cash flow (operating cash flow minus capital expenditures) that we expect in 2023-27, along with the $3.2 billion in liquid cash and available credit as of June 30, 2023, to be focused on reducing debt levels and investing in the digital sports and iGaming markets,” wrote Morningstar analyst Dan Wasiolek in a note.

Despite not having any significant debt maturities until 2025, when $4.3 billion worth of corporate debt matures, Caesars Entertainment is unlikely to engage in substantial stock buybacks until next year, and dividends are not expected before 2026. Unlike its peers, Caesars does not currently offer a dividend to its shareholders.

Analysts Still Supportive of Caesars … Sort Of

Caesars started the year with strong support from Wall Street analysts, but the stock has underperformed, falling by 5% over the past 10 months.

Following the release of the third-quarter earnings report, most analysts maintain a positive outlook on Caesars Entertainment. However, at least six analysts have lowered their price targets for the stock since then. CFRA Research analyst Zachary Warring was part of this group but upgraded Caesars to a “hold” rating from a “sell” rating.

“We believe the recent sell-off in shares (+30%) was warranted due to the company’s debt burden, but now believe shares trade near fair value as the company has only $247M in debt maturing in 2024 and has plenty of assets to sell if necessary,” wrote Warring in a note to clients. “We would like to see continued progress on the balance sheet before expecting multiple expansion.”

Some analysts anticipate that Caesars’ property-level margins will improve in the current quarter, primarily due to the removal of the low-margin venue, the Rio Hotel & Casino Las Vegas, from Caesars’ portfolio.

Catalysts in Place for Caesars Rebound

The upcoming events in Las Vegas, including the Formula One’s (F1) Las Vegas Grand Prix, could have a positive impact on Caesars’ stock.

“And we also have, obviously, F1 coming to Vegas, feel very, very good and no change in what we’re expecting in terms of lift in the quarter in the neighborhood of 5%,” said Caesars CEO Tom Reeg on a conference call with analysts.

Reeg added that the amount of credit play in Las Vegas during the F1 week could be on par with or exceed New Year’s Eve, and things are shaping up similarly for the Super Bowl next February, which Las Vegas is hosting.

In terms of potential property-level catalysts, Caesars will complete construction on permanent casinos in Columbus, Neb., and Danville, Va., next year, as well as an overhaul of Caesars Palace New Orleans. This is significant because New Orleans will host the Super Bowl in 2025.

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