Caesars Entertainment Inc. announced on Thursday it has reached an agreement to sell Caesars Southern…
Posted on: January 22, 2021, 09:32h.
Final up to date on: January 22, 2021, 12:34h.
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Caesars Leisure (NASDAQ:CZR) is larger by greater than eight % to begin 2021 and 111 % over the previous six months. Citing an array of catalysts, one analyst says there’s extra upside the place that got here from for the Harrah’s operator.
Caesars Palace Las Vegas, seen right here. An analyst sees rather a lot to love with the inventory. (Picture: Barron’s)
In a be aware to purchasers at present, Stifel analyst Steven Wieczynski reiterates a “purchase” ranking on Caesars inventory, whereas lifting his value goal on the title to $105 from $95. The brand new forecast implies upside of greater than 25 % from present ranges.
Whereas COVID headwinds may stress near-term estimates as journey/gathering restrictions stay in place (and will worsen), we consider CZR stays nicely positioned long-term because the world finally recovers from this pandemic, given their compelling asset combine (Vegas/regionals/sports activities betting/iGaming),” mentioned the analyst.
Earlier this month, Nevada Gov. Steve Sisolak (D) prolonged for 30 days the coverage that casinos, bars, and eating places should cap capability at 25 % to stem the unfold of the coronavirus. Consultants query the effectiveness of that protocol and the boundaries on visitors crimps Caesars, which runs 17 gaming venues within the Silver State.
Catalysts Can Outlast COVID-19
Because the second-largest operator on the Las Vegas Strip, Caesars inventory is lengthy considered a play on vaccine distribution and an financial rebound within the largest home gaming hub. The tempo of that restoration stays sluggish, however there’s extra to the story than simply Sin Metropolis belongings.
“The William Hill deal closes late-1Q to early-2Q which ought to trigger buyers to begin considering extra in regards to the long-term prospects behind CZR’s sports activities betting/iGaming platform,” mentioned Wieczynski. “As soon as the deal closes, we’d count on administration to begin laying out extra particulars behind a potential sports activities betting/iGaming spinout, or what the earnings energy of the 100% managed entity may appear to be.”
The analyst says one other potential spark for Caesars is the 55 and up age demographic. He notes that as extra of them get vaccinated, pent-up demand will probably be unleashed as quickly as this 12 months. Add that into the sports activities betting thesis, and there’s room for extra upside within the inventory.
“We consider there are eight to 12 states that might go down the trail of legalizing sports activities betting this 12 months which ought to proceed to help long-term complete addressable market (TAM) estimates (regardless of how loopy they’re),” mentioned Wieczynski.
Different Levers to Pull
The Stifel analyst factors out that Caesars stays intent on divesting a Strip property, and that course of may speed up as coronavirus vaccines are distributed on a broader scale. Including up the aforementioned factors creates a doubtlessly profitable deleveraging missive, in accordance with Wieczynski.
“Each catalyst we identified ought to assist drive leverage decrease. Any deleveraging occasion that CZR can take part in will solely drive the fairness worth larger, given leverage is among the greatest overhangs on this story,” he writes.
Firming up the steadiness sheet is important, as a result of Caesars carried $16.2 billion in liabilities as of the tip of the third quarter. A lot of that debt is junk-rated, which means larger curiosity expense.
It may take a while, however trimming that burden is feasible. Wieczynski says Caesars can prime the $900 million in value efficiencies promised by means of final 12 months’s merger with Eldorado Resorts, and that the operator may generate as a lot as $8.75 a share in free money circulate by 2023.
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