A recent investor note from Bank of America bumps Caesars Entertainment stock up from a “neutral” rating to “buy” status. The bank was more circumspect on Wynn Resorts, moving it down a notch from “buy” to “neutral.”
As regards the Caesars shift, Bank of America emphasized the company’s new digital strategy.
“We think CZR can transform (again) into an omni-channel winner, with accelerating online market share,” it said in a statement. “Today, CZR sits at <3% digital market share. But we think this is poised to rise via a large $1.5B budget over the next 2.5 years, strong front end partnerships (ESPN, CBS, NFL), and an experienced back end and tech team powered by William Hill, and Total Rewards.”
Caesars just unloaded its overseas casinos to newly formed Metropolitan Gaming (a subsidiary of Silver Point Capital) and got points from Bank of America for its extensive domestic presence. Although Las Vegas, where Caesars controls a preponderance of the Strip, has lagged slightly in the U.S. gaming recovery, its’ extensive network of regional casinos stands to benefit from the faster-than-expected rebound in stateside gambling.
Another positive factor to Bank of America analysts was the potential proceeds from the international assets of William Hill (expected to be purchased by Entain), which are anticipated to underwrite CZR’s online expansion. “To fund this transition, CZR now has a strong, cash-generative, land-based, casino business that should deleverage rapidly and throw off meaningful cash flow,” the bank’s analysts wrote.
Wynn Resorts’ downgrade can be summed up in one word: Macau. The company is heavily exposed in that market (Caesars has no Macanese presence) and the enclave continues to suffer from COVID-19 quarantines in Mainland China. Revenues for the first week of August were the weakest since late September 2020. In normal times, Macau accounts for 70 percent of Wynn Resorts’ cash flow.
“Ongoing visa restrictions and lack of a travel bubble with Hong Kong are among the issues weighing on Macau concessionaires, including Wynn. While authorities there are reluctant to implement another casino shutdown, the situation is tenuous,” Bank of America analysts warned.
If there was any consolation for Wynn shareholders in the Bank of America report, it was that the bank’s analysts — in line with the prevailing Wall Street consensus — are positive that Wynn’s Macau gaming concession will be renewed, although the exact timeline for that process remains fluid.
A share of Caesars currently trades at $92.23, Wynn’s at $96.44.
