On January 17, 2024, at 02:28h.
Last updated on: January 17, 2024, 02:28h.
CBRE analyst John DeCree decreased his price target on Caesars Entertainment (NASDAQ: CZR), attributing it to the consequences of recent labor negotiations with the Culinary Union and limited benefit to the operator from November’s Las Vegas Grand Prix.
He then revealed a new price forecast for the stock.
Translation: Many of the high rollers that traveled to Las Vegas likely didn’t visit Caesars’ properties such as the Flamingo, Harrah’s, and the Horseshoe. Aria, Bellagio, and Cosmopolitan are operated by MGM Resorts International (NYSE: MGM).
Analyst Pares Caesars Cash Flow Estimate
DeCree also reduced his fourth-quarter cash flow estimate on Caesars to $945 million from $991 million. Of that reduction, $30 million is attributable to the Las Vegas Strip and the Atlantic City, NJ Boardwalk where Caesars’ trio of casino hotels are struggling to keep pace with market leaders Borgata, Hard Rock Atlantic City, and Ocean Casino Resort.
Another $15 million in cash flow estimate reduction was attributable to Caesars Digital, with DeCree citing favorable sports betting results in the fourth quarter. Analysts have pointed to a similar trend potentially hindering results for other sportsbook operators.
DeCree expects Caesars will generate cash flow of $3.9 billion this year, slightly below the consensus forecast of $4 billion. He added that Caesars Digital could recognize some benefits with revenue slated to grow 27% and as the operator halts some costly marketing partnerships, which could generate savings.
Caesars Bonds Could Hold Clues
While Caesars stock has struggled to start 2024, the company’s debt could hold positive clues for investors. As noted by DeCree, the operator’s oldest debt recently sported yields of 9%, but since declined to 6.5%. Bond yields decline as prices rise.
DeCree observed, “Credit markets are viewing the company more favorably than just three months ago, likely due to lower base rates, but also the resilience of casino cash flows in the face of lingering inflation, inflecting profitability in digital, and ongoing debt paydown.” Caesars is widely viewed as one of the more compelling deleveraging stories in the industry.
At the end of the third quarter, the company had $12.29 billion in outstanding liabilities — well below the total seen in mid-2020 when Eldorado Resorts finalized its acquisition of old Caesars. It’s expected the operator will slash debt by at least $1 billion this year.