Caesars Still a Buy, Could Land $2B in Strip Asset Sale, Says Analyst

Posted on: January 31, 2022, 10:46h. 

Last updated on: February 1, 2022, 10:14h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Caesars Entertainment (NASDAQ:CZR) stock is trading higher today after a sell-side analyst issued bullish comments on the name, despite a 21 percent slide this month.

Caesars stock
The Flamingo on the Las Vegas Strip, seen above. Operator Caesars is rallying on bullish analyst commentary. (Image: Las Vegas Review-Journal)

In a note to clients, Jefferies analyst David Katz reiterates a “buy” rating on the Harrah’s operator. It notes that the recent weakness in the shares is likely attributable to high leverage and that the company could generate as much as $2 billion in an upcoming sale of one of its Las Vegas Strip venues.

The company has indicated its intent to divest a Las Vegas Strip asset as part of its deleveraging strategy, which we have estimated should generate $2 billion,” said Katz.

Caesars CEO Tom Reeg said last year that the operator could put in motion a sale of one of its Strip assets in early 2022. He didn’t say which one could be on the auction block, nor did Katz speculate to that effect. Caesars Palace can be removed from the group of potential properties to be sold because it’s the operator’s flagship Las Vegas venue. and it’s owned by VICI Properties (NYSE:VICI).

Good Time for Caesars to Sell

Last month, MGM Resorts International (NYSE:MGM) sold the Mirage operating rights to Hard Rock International for $1.075 billion, stoking speculation that Caesars would be able to fetch premium pricing when it unloads one of its Strip assets.

The Mirage sale, coupled with that of the Cosmopolitan last September, confirms there’s still a strong appetite for Strip properties, and that operators looking to part with those assets are in strong bargaining positions. That’s a plus for Caesars because as Katz notes, the operator’s leverage is high and it’s contending with $26.93 billion in liabilities.

“The current levels of 7.0X lease-adjusted is likely weighing on shares, in the context of the pending asset sales,” said the analyst.

Caesars is likely to wrap up the sale of William Hill’s international assets to 888 Holdings in the current quarter, resulting in $2.9 billion in proceeds. That capital and the cash from selling a Las Vegas integrated resort could go a long way toward paring leverage.

Digital Investments

Caesars is making it clear it intends to be a prominent player in the iGaming and sports wagering spaces, and that it will spend to that effect.

“In this context, the continued investments in digital, which we reflect as $1.2B of EBITDA losses from 2H21 through 2023, offsetting the fundamental strength in regional and Las Vegas casinos,” notes Katz.

However, the analyst adds the digital opportunity for Caesars is compelling, and the operator’s spending level is appropriate. It might already be paying off, as the company is rapidly ascended to the top spot in the newly open mobile sports wagering market in New York.