Recent cancelations of numerous shows by Adele at the Colosseum at Caesars Palace and low holds at table games on online sports betting were the top three factors that led J.P. Morgan analyst Joseph Greff to lower his outlook for Caesars Entertainment’s first-quarter earnings.
Greff stuck by a $54-per-share price target on the stock, which was trading at $43.08 at the time of his report. He also said that he suspected his views “will not surprise investors, as management has detailed this at recent conferences,” including a March 14 conclave in Las Vegas with Caesars CEO Tom Reeg.
In addition to the postponed Adele dates, which will be made up in October, Greff noted that low table hold was affecting his view. So was lower-than-normal hold in online sports betting, caused by the Super Bowl going into overtime and March Madness favorites holding their own, as expected.
Greff shaved $45 million off his first-quarter projection of cash flow, bringing it down to $461 million. As for lower table-game winnings, he assumed they would be in the neighborhood of $900 million, resulting in a $40 million shortfall. He pegged the adverse Adele factor at $5 million.
Although Caesars’s OSB cash flow would be negatively affected to the tune of $25 million, Greff still estimated a $15 million profit in the offing. “We note other OSB operators with greater parlay mix exposure likely weathered low OSB hold impact better than [Caesars] (which has a lower parlay mix),” he added.
Despite harsh winter weather, Greff stayed with a prediction of $426 million in cash flow from Caesars’s regional casinos. He noted, “March regional GGR has been relatively normal, with low-single-digit net-revenue growth. These estimate revisions are driven by events that are one time in nature,” he continued, characterizing his forecasts through 2025 as “unchanged” and “undemanding.”
“We maintain our Overweight rating and believe [Caesars] possesses underappreciated free-cash-flow generation and leverage-reducing characteristics not reflected in its valuation multiple,” Greff wrote.
He observed that Caesars underperformed MGM Resorts International for the past three months. Caesars shares have been down four percent over that trimester, while MGM’s have appreciated by a like amount, “reflective of poor investor sentiment and providing an attractive entry point.”
