Blaming “lower than previously expected performance from F1 in November,” J.P. Morgan analyst Joseph Greff reduced his price target on Caesars Entertainment stock and his estimates of 2023 and 2024 cash flow.
Greff’s price target went down $1 to $54 per share, while 2023 cash flow was re-estimated from $3.98 billion to $3.4 billion. Cash-flow projections for next year went down incrementally, but still hovered near $3.81 billion.
The analyst observed that Formula One Weekend in Las Vegas “benefitted the higher-end properties,” such as Caesars Palace, but not the middle-tier and lower-end casinos in which Caesars specializes. Most of the benefit, he said, redounded to higher-end MGM Resorts and Wynn Resorts.
Construction disruption at Harrah’s New Orleans, which is in the process of gradually being converted to a Caesars-level property, was also blamed, as was soft performance at Caesars’s three Atlantic City casinos. The latter have not been able to break into the top tier of Boardwalk performance, represented by Borgata (MGM), Hard Rock Atlantic City and Ocean Casino Resort.
The NFL was also a scourge of Caesars this quarter, with adverse results for the sportsbooks driving down hold in the third and fourth weeks of November. This, Greff wrote, likely masked an acceleration in igaming handle, as well as in non-gambling revenues.
Las Vegas Strip cash flow suffered the biggest bite from Greff’s recalibrations, going from an estimated $522 million in the current quarter to $497 million. Regional-casino projections went down to $430 million from $438 million, while the digital sphere was now estimated to be bringing in $30 million in fourth-quarter cash flow, instead of the previously projected $43 million.
“Our sense is that CZR’s lagging share-price performance is a function of investors ‘wanting to wait out 4Q23 estimate risk’ and think consensus estimates moving lower is a cleansing event, where investors can play CZR for better 2024 LV Strip, Regional, and Digital momentum,” Greff opined. He noted that Caesars has underperformed rival MGM for the past trimester, with Caesars’s stock price up only three percent against MGM’s 24 percent surge and a 10 percent improvement in the overall Standard & Poor’s Index.
Noting that Caesars trades at a 14 percent free-cash-flow yield, Greff offered that it was “an attractive level, especially on what we would consider to be our undemanding 2024 forecasts, which we think has more upside than downside.”
Greff foresaw a reduction in the company’s leverage lying ahead, with $2.4 billion in debt slated to be retired between now and the end of 2025. He predicted that leverage would go from a present 4.2 times cash flow to 3.7 times in two years, “all manageable levels.”
