Down 18 percent year-to-date, Caesars Entertainment (NASDAQ:CZR) stock, like its gaming industry brethren, is slumping. However, an analyst is bullish on the casino giant on the basis that it appears the operator is moving toward eliminating occupancy restrictions at its Las Vegas Strip venues.
In a recent note to clients, B. Riley analyst David Bain reiterates a “buy” rating on Caesars with a $183 price target. That implies the shares can more than double from the April 1 close of $76.65. The analyst points out that Caesars is hiring more staff on the Strip to support robust demand and that could be a sign the gaming company is nearing elimination of its occupancy cap, which is a relic of the coronavirus.
With the cap eliminated, we believe CZR’s LV occupancy will trend closer to pre-COVID levels, or ~10 points higher. We calculate added occupancy equates to close to $150 million earnings before interest, taxes, depreciation and amortization, per annum,” writes Bain.
Caesars’ best recent quarter in terms of Las Vegas EBITDA was the July through September period of 2021, during which the company generated $500 million in EBITDA on the Strip. Bain says that mark could be approached as COVID-19 restrictions ease.
Incoming Cash Could Bolster Caesars Stock
Caesars is waiting on $1 billion in net proceeds from the sale of William Hill’s international operations and is likely already in talks regarding the sale of a Las Vegas asset, according to Bain, indicating a significant amount of cash could be flowing to the company’s coffers over the near-term.
While speculation is running rampant regarding which Strip venue Caesars will part with — Flaming, Paris and Planet Hollywood command the bulk of the chatter — and whether or not the operator will part with the sold asset outright or engage in a sale-leaseback, it’s clear Wall Street likes the idea because such a transaction will help Caesars pare leverage.
“We forecast leverage of under 4x next year, ~3x when including proceeds from a proposed Strip asset sale from FY21A ending leverage of 7.3x,” said Bain.
Based on recent prices at which Strip properties changed hands, analysts speculate Caesars could command as much as $3 billion in a sale of Flamingo Las Vegas, Bally’s Las Vegas, Paris Las Vegas, and Planet Hollywood Resort & Casino.
Online Moves Applauded
Earlier this year, Caesars said it’s dramatically reducing its traditional media spending for its online sportsbook unit. Fortunately, that’s not affecting the operator’s market share. B. Riley’s Bain says Caesars’ share of the US the domestic online sportsbook market is 14.8 percent while the company controls 3.8 percent of US iGaming.
The analyst adds the operator should be a significant internet casino player in Ontario, Canada and that spending to that effect is under control.
“We note CZR’s initial marketing spend for its iCasino and OSB in Ontario is reflected in estimates, and its managed Caesar’s Windsor in Ontario and overall omnichannel approach offer strong opportunities for solid out-of-the-box market share in Ontario (versus catch up share gains in certain legacy jurisdictions),” he notes.
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