Bowing to market forces, Caesars Entertainment is increasing hotel staffing to support growing demand for rooms, according to what B Riley investment bank insiders call “market participants.” The casino giant is also lifting an occupancy cap at its Strip hotels. Employee levels in the Las Vegas market have been artificially depressed for the past year as resort companies try to maintain COVID-era profit and cash flow margins.
With the cap eliminated, Caesars will regain pre-COVID levels of occupancy or ones higher still and add $150 million in annual cash flow, Riley analysts predicted in a note Friday. Even when occupancy was capped in 2021, Caesars achieved third-quarter cash flow of $500 million, a benchmark Strip competitors were not expected to reach until the end of this year. Lead analyst David Bain called the earnings “indicative of market health and forward visibility.”
Following a one-time splurge in New York State when Internet sports betting debuted, Caesars Sportsbook has reined in its marketing expenditures. Bain pegged Caesars’ online sports betting (OSB) market share at 15 percent, doubling the seven percent it stood at in the first half of 2021. Caesars “has rapidly reduced its traditional TV and media spend for OSB while market share gains have remained stable,” wrote Bain. He also credited sports betting with generating crossover to icasino play and increased Caesars Rewards applications. “We anticipate additional iCasino share gains with Ontario’s go-live and increased game content in existing markets,” Bain wrote.
He added that, in Ontario, the Canadian province most aggressively pursuing igaming, the company’s presence at Caesars Windsor and general omnichannel approach to gaming “offer strong opportunities for solid out-of-the-box market share … (versus catch up share gains in certain legacy jurisdictions).”
For Caesars, the last fiscal year ended with 7.3 times equity EBITDA leverage, a ratio Bain thinks the company can get down to between three and four times cash flow with the much-bruited Las Vegas Strip asset sale, most likely Planet Hollywood Resort. (Caesars CEO Tom Reeg has hung a $2 billion-to-$3 billion price tag on whichever property he will sell.) “We believe negotiations for a Strip asset sale are also underway, representing a significant catalyst by broadening investor appeal through a rapid leverage reduction,” reported Bain. This will be augmented by $1 billion from 888 Holdings for the non-U.S. William Hill assets.
Bein reiterated his “Buy” rating on Caesars, with a price target of $183 a share. It was trading at $77.36 per share at the time of his report.
