According to a Wall Street analyst, Caesars Entertainment will show a better hold than its peers on the Las Vegas Strip when it releases results next Tuesday. Unlike it’s competitors, however, Caesars will come in below consensus.
Deutsche Bank’s Carlo Santatelli advised investors not to get carried away with Las Vegas fundamentals due to peer stock reactions.
MGM’s fourth quarter report and the favorable reaction in shares were followed by a similar dynamic with Wynn Resorts, so Santarelli believes Las Vegas expectations for Caesars have likely risen.
“We believe perspective is important, and by this we mean MGM’s fourth quarter Strip-adjusted EBITDAR was down 11% year-over-year, while Wynn adjusted EBITDAR was down 1% year-over-year due primarily to high hold (-9% year-over-year hold adjusted),” Santarelli said.
“Both Strip results were better than their respective consensus forecasts. We don’t expect the same for Caesars, though we expect Caesars to actually have the strongest hold adjusted fourth quarter of the group.”
With completed fourth-quarter regional gaming revenue results, Las Vegas data, and the reports from Wynn and MGM from which to bridge, “We have tightened up our Caesars forecasts for each of the key operating segments,” Santarelli said. “Our Las Vegas Strip and digital forecasts are lower, while our regional forecast was revised higher. Broadly, we expect Caesars’s Las Vegas Strip performance to be better than peers on a year-over-year hold adjusted basis. That said, we expect results to come in below current consensus forecasts (of $489 million).”
Santarelli pointed out that Caesars completed the sale of the LINQ promenade, which contributed roughly $6 million to the $489 million fourth-quarter 2023 segment EBITDAR result. Market gaming revenue was down 3% year-over-year and fourth-quarter Strip revenue per room was down about 10% year-over-year, despite the benefits from presumably better year-over-year table hold and the benefits from the Versailles Tower.
Hence, “We think it’s hard to envision a scenario in which Caesars can show same-store Strip growth in the fourth quarter.”
As it relates to the non-gaming side, management previously noted that Strip cash room revenue was expected to be up slightly year-over-year in the fourth quarter. Management also noted that group business is up year-over-year in 2025, while they expect strong occupancy and hotel pricing trends to continue into 2025, Santarelli observed.
“With both MGM and Wynn having reported and with the full fourth quarter gaming revenue data from the Nevada Gaming Control Board, we are able to better decipher the implications for Caesars,” Santarelli said.
“While both MGM and Wynn experienced favorable hold, though Wynn far more so than MGM, the two combined to garner less share in the fourth quarter (58.6%) relative to the fourth quarter of 2023 (59.5%). Given incremental competition and the nuances of calendar accounting with the Nevada data, especially in the fourth-quarter period, we aren’t reading much into this.”
To hone in on Caesar’s gaming revenue, Santarelli used the average Caesars shares across the verticals from the third quarter of 2024 and fourth quarter of 2023. That method implies gaming revenue “is more or less flat” year-over-year in the fourth quarter.
“We think this makes sense in light of the 3% year-over-year Strip gaming revenue decline, Caesars’s lower-than-normal hold in the fourth quarter of 2023, and the high hold experienced by peers in the fourth quarter of 2023,” Santarelli said.
Assuming shares remain relatively static, implied gross gaming revenue would be roughly flat year-over-year ($443 million implied fourth quarter of 2024 versus $445 million estimated fourth quarter of 2023), Santarelli said. He added that their fourth quarter of 2024 net casino revenue forecast of $272 million is up 2% year-over-year. The delta implies promotions representing 38.7% of gaming revenue in the fourth quarter, down year-over-year, but up relative to the fourth quarter of 2022 and on a quarterly sequential basis, Santarelli said.
Tracked same-store gaming in the fourth quarter was “considerably better than recent trends,” with Caesars’s same-store footprint declining just 2.5% year-over-year in the period, Santarelli said. That’s relative to high-single-digit declines over the first through third quarters of 2024. Their estimates for the regional segment are higher, adding the gaming revenue performance at the permanent facility in Virginia was better than expected, albeit at a likely lower EBITDA margin.
“We expect the 2025 regional outlook to be a point of focus on the upcoming call,” Santrelli said. “Recall, management previously noted that the regional segment faced more headwinds than tailwinds in 2025, and that it is expected to be flat to down slightly from an EBITDAR perspective. We believe management commentary and trends have improved, albeit modestly, and with more color around the performance in Virginia and New Orleans, it will be interesting to see if management takes a more bullish stance around this outlook.”
