Nearly halving his price target on shares of Caesars Entertainment stock, Jefferies Equity Research analyst David Katz also reduced his rating on the shares from Buy to Hold.
Katz decimated his price target from $39 per share to $22 apiece, citing “factors outside [Caesars’s] control. The downgrade came as part of a November 4 investor note.
In the same report, Katz elevated Station Casinos from Hold to Buy. He cited “its next growth project and a clear path to upside.” He kept a $65 per share price target on the stock.
The analyst warned, “The path to upside for Caesars is getting more complex.” He highlighted a 20 percent plummet in Las Vegas results, which missed their third-quarter forecast by six percent. Caesars’s online operations plunged 46 percent for a 60 percent earnings miss.
“Most importantly, our confidence that Las Vegas and regionals can grow is low,” Katz continued, modeling average growth of two percent over the next 15 months. He also saw online operations coming up short, growing cash flow 23 percent $374 million and not the half-billion dollars management had led him to expect.
“We also note that the path to higher earnings in land-based gaming likely requires significant capital,” Katz warned, mentioning that the last property-refresh cycle was nine years ago. And even were Caesars to work out a master-lease arrangement with Vici Properties, it was predicted to be capital-intensive.
Katz opined that “outside forces” would have to intervene to improve Caesars’ prospects. He felt it was as likely that the situation would worsen for the company as for it to beat Wall Street’s expectations. “Land-based gaming earnings have not found a bottom and may not have yet,” he concluded.
Regarding Station, Katz noted that, thanks to capital projects, the company had boosted its cash flow 67 percent above 2019 altitudes. Even so, “buyside expectations were higher,” causing a 10 percent selloff of Station stock after third-quarter earnings were announced.
The Jefferies analyst observed that renovations of Sunset Station and Green Valley Ranch were midstream, while a $385 million third phase of Durango Resort was newly on the boards. And Station’s pipeline of other projects could inject “several hundred million” in new cash flow, $200 million of that by late 2028.
“We further put the projects in the context of their exclusive focus in the Las Vegas locals market, which continues to grow economically,” Katz elaborated. “In short, the product and market are positive, the execution has been productive, and the clarity of future growth all meet our key criteria.”
Katz finished by saying that he was scarcely concerned about Station’s ability to execute on its ambitions. “The capital project pipeline growth through the next few years is clear and the economic tailwinds in the Las Vegas valley remain,” he wrote.
