Upward movement in Caesars Entertainment’s non-Las Vegas operations drew a favorable notice from J.P. Morgan analyst Joseph Greff yesterday. “We still like” Caesars, wrote Greff, saying his team had “scrubbed our model” and raised its forecasts. He maintained an “Overweight” rating on the stock and boosted his price target $1 to $71 per share.
Greff was particularly impressed with Caesars’ regional performance, forecasting second-quarter cash flow of $504 million, up from a predicted $496 million. While he had expected Caesars’ online assets just to break even this quarter, he now expects a $7 million positive return on investment.
Greff’s Las Vegas Strip prognostication remained unchanged, “though we suspect that there is a more upside than downside to this forecast, given quarter-to-date LV Strip gaming and [room revenue] results.” His forecast for second-quarter Strip cash flow is $513 million, slightly below Wall Street’s consensus of $515 million.
“The shares have had a nice move since May 31, up 29%, outperforming the SPX’s +8% move and peer MGM’s 22% return,” Greff continued. He said he had been fielding three questions from investors: How much credit is Caesars getting for its free-cash-flow generation? How much is it being appreciated for its leverage reduction? And how much digital-performance credit is being applied to CZR?
Greff replied that there was still more upside to be realized. He added, “Investor sentiment is, in our view, fairly negative, given concerns about the health of the low-end consumer, eroding of pandemic excess savings, and likely mixed 2Q23 regional performance from some of CZR’s regional peers.”
As for the digital sphere, he said that like BetMGM, Caesars’s would go a long way toward incremental equity value. He cited the example of DraftKings, whose stock is greatly outperforming the company itself, trading at 20 times estimated 2025 cash flow and 60 percent higher over the last three months.
Greff opined that one major Caesars development was flying below investors’ radar. “An underappreciated aspect of CZR’s digital strategy is its July launch (later this month) of its rebranded and enhanced icasino app, with improved branded content on slots and live-dealer table games, with the goal to achieve higher icasino market share and incremental EBITDA gains.”
The analyst termed Caesars’s free cash flow “still appealing.” His new estimated, he wrote, had Caesars trading at 14 times free cash flow this year and 15 times the next. “Still pretty attractive,” Greff summarized. He predicted a steady reduction in net debt, from 4.1 times cash flow at year’s end to 3.5 times EBITDA at the end of 2024.
In conclusion, Greff wrote that his new valuation still didn’t account for improving group and convention business in Las Vegas, nor for Formula One or the 2023 Super Bowl. He also left out “a strong events calendar … which should allow LV to perform relatively better than most, if not all, generic leisure markets in 2023.” Macroeconomic concerns, he said, continued to weigh on the stock in the form of “negative sentiment.”
