Caesars Entertainment is out to change the opinion of the investment community.
Fast approaching the first anniversary of its emergence from a more than two-year bankruptcy reorganization and following what some viewed as a perplexing second quarter earnings call, company officials held meetings this month with analysts and participated in several investor conferences.
The results of these efforts have been reflected in recent Wall Street commentary, but not so much in the stock price. Caesars shares are down roughly 17 percent since the beginning of the year on the NASDAQ and closed last week at $10.65.
The company has spent much of the last six weeks explaining why it expects full-year revenues from its nine Las Vegas Strip-area resorts will be down from previous projections, even as the numbers reflect an increase of between 2 percent and 4 percent from a year ago.
Meanwhile, internal battles with some shareholders surfaced last week. The New York Post reported that HG Vora Capital has built a 4.9 percent stake in the company and would like to force a sale.
Caesars did not comment on the move by the hedge fund, but there has been some tension between management and shareholders. On the Aug. 2 earnings call, Caesars CEO Mark Frissora said the company has “a lot of people in the stock that aren’t in it for the long haul.”
Earning praise
Caesars has sought coverage from Wall Street to improve its standing with investors. The bankruptcy reorganization created VICI Properties, a real estate investment trust that owns the land and buildings associated with 20 Caesars resorts. The operations are leased back to Caesars Entertainment.
Deutsche Bank gaming analyst Carlo Santarelli, reinforcing his previously-stated view that Caesars would outperform its competition, said Thursday many investors still have trouble understanding the REIT versus operations investment models. He believes Caesars’ portfolio has been undervalued.
Coupled with reduced revenue projections from the Strip for the summer months, company officials find themselves explaining a myriad of issues. At last week’s Bank of America Gaming and Lodging Conference, Frissora said newly enacted parking fees on the Strip are not hurting visitation.
It’s a touchy subject for Caesars, which has been hampered by the third quarter Strip revenue concerns after the company admitted Las Vegas revenue per available room (RevPar) – a non-traditional measure used to gauge profitability – would be down.
Santarelli said investors forget Las Vegas’ 2017 third quarter was an outlier due to a heavy special event calendar, headlined by the highly publicized Floyd Mayweather-Conor McGregor boxing match.
“While we do not believe (the) Las Vegas Strip fundamentals are awe inspiring, by no means do we think the Strip performance in the third quarter is evidence of the cyclical end,” Santarelli said. “In fact, we are bullish on the fourth quarter and our RevPar forecasts … are well above consensus.”
Other analysts expressed measured support for Caesars.
Jefferies analyst David Katz said last week, “Our view is that the business remains on a positive operating track while the guidance and setting of expectations presents an uncertainty.”
Credit Suisse gaming analyst Cameron McKnight called Caesars his “top pick in gaming,” telling investors the company’s large footprint provides opportunity.
“We like the following industry dynamics: a good long-term outlook for the Las Vegas Strip; diversified revenue drivers; share growth and healthy corporate and meeting business; and defensive, domestic growth in regional markets, with reasonably known supply growth,” McKnight wrote in a research report.
The future
After the bankruptcy was finalized, Caesars began to draw interest regarding the company’s plans moving forward. Caesars has invested a considerable amount of time in the push to win one of three planned Japan integrated resorts; the results of that effort won’t be known for a few years.
Meanwhile, the company has taken its Caesars Palace brand to non-gaming resort projects in Mexico and Dubai. A similar effort might be underway in Macau, where subsidiaries filed trademark protections for the names Flamingo and Cromwell, which are associated with two of Caesars’ Las Vegas Strip resorts.
Two former Caesars chairmen have said in the past that Caesars not earning one of the six Macau gaming licenses was a large mistake. Frissora, during an interview on CNBC last month, hinted at some type of Macau prospect.
McKnight told investors it made sense for Caesars to register the trademarks for several reasons: Macau licenses may open for bidding between 2020 and 2022, another licensing opportunity may arise, and the move allows Caesars to protect its intellectual property.
In Las Vegas, the company is renovating roughly 20 percent of its hotel room inventory. McKnight said in a research note that the rooms were “neglected” during the bankruptcy and the renovation will allow the company to charge a higher rate.
The company’s $1.7 billion purchase of two Indiana racetrack casinos earlier this year, however, was questioned.
“Where we differ on management’s direction is on (acquisitions) and capital returns,” Katz said. “We believe the pursuit of acquisitions which are not immediately accretive, such as the acquisition of (the racetracks), maintain the risk level of the balance sheet in the near term before reducing it over the next several years.”
Howard Stutz is the executive editor of CDC Gaming. He can be reached at hstutz@cdcgamingreports.com. Follow @howardstutz on Twitter
