On January 17, 2024, CBRE analyst John DeCree lowered his price target on Caesars Entertainment (NASDAQ: CZR). This was due to the recent labor negotiations with the Culinary Union and the limited benefit provided to the operator from the November’s Las Vegas Grand Prix. DeCree revealed a $67 price forecast on the casino stock, down from $72, implying upside of 52.2% from current levels. Caesars’ stock has struggled, with shares being off 6.44% year to date.
The positive impact from the November Formula One (F1) race on the Las Vegas Strip was limited for Caesars. DeCree stated that Caesars’ mid-tier properties likely did not capture as much of the international baccarat volumes, favoring properties such as Bellagio, Aria, Cosmopolitan, and Wynn. This means many high rollers who visited for the race may not have visited Caesars’ properties, such as Flamingo, Harrah’s, and the Horseshoe.
Due to these factors, DeCree reduced his fourth-quarter cash flow estimate on Caesars to $945 million from $991 million. Another $15 million of that cash flow estimate reduction was attributed to Caesars Digital, with DeCree citing lucky results for sports bettors in the fourth quarter. He expects Caesars to generate a cash flow of $3.9 billion this year, slightly below the consensus forecast of $4 billion.
The company’s debt could hold positive clues for investors, with the operator’s oldest debt having recently sported yields of 9% but declining to 6.5%. DeCree observed that the dislocation between how credit and equity markets value the company has widened, creating a compelling buying opportunity for the equity. Caesars is widely viewed as one of the more compelling deleveraging stories in the industry, expected to slash debt by at least $1 billion this year. At the end of the third quarter, the company had $12.29 billion in outstanding liabilities, well below the total seen in mid-2020 when Eldorado Resorts finalized its acquisition of “old Caesars.”