Caesars Entertainment (NASDAQ: CZR) shares saw a bounce on Wednesday following a late Tuesday post-earnings report decline. The gaming company's reaffirmed commitment to debt reduction may have contributed to the stock's current upswing.
Caesars has been reducing leverage ratios by using surplus free cash flow to reduce liabilities, and increasing earnings before interest, taxes, depreciation, and amortization (EBITDA) helps achieve this goal. However, any business can reduce debt in different ways. Among them are asset sales, which CEO Tom Reeg seems amenable to.
"We have a number of assets that produce very little or no cash flow that are non-core to the business, non-operating casinos that could potentially be monetized at attractive rates where you wouldn’t have to change your model much,” said Reeg in response to question from JPMorgan analyst Joseph Greff on Caesars’ earnings conference call late Tuesday. “And without getting too forward-looking, you shouldn’t be surprised if some of those types of things start to happen in 2024 that our leverage reduction is not limited to only free cash flow.”
The operator of Harrah's had outstanding liabilities of $12.436 billion as of March 31, 2023, as opposed to $12.439 billion at the end of 2023. Caesars reported $726 million in cash on hand at the end of the first quarter, excluding $139 million in restricted cash.
Reeg Mum on The Potential Sales of Caesars Casinos
Reeg’s remarks regarding the possibility of Caesars selling non-core assets this year came amid concerns from some market observers that the Federal Reserve delaying interest rate cuts could hinder 2024 consolidation activity. This could be a positive sign for the gaming industry and investment bankers alike.
The CEO of Caesars also declined to say which gambling establishments the business views as "non-core." The massive gaming company with its headquarters in Nevada runs more than 50 casino hotels across 17 states and Canada, including those that are handled in collaboration with tribes.
Caesars was allegedly actively shopping the Flamingo on the Las Vegas Strip in 2022, but no deal came through, and the company decided not to try to unload the facility last year. Caesars' debt-reduction efforts would probably benefit greatly from the sale of a Strip property, but Reeg did not indicate that the operator is considering making such a move.
However, research points to a growing downturn in several local gaming markets as a result of declining consumer expenditure. That might provide operators a good incentive to consider splitting up with local casinos, but macroeconomic challenges will probably have a negative impact on the prices sellers are able to get.
Analysts Are Calm About Caesars After Earnings
Caesars missed Wall Street revenue and earnings projections in the first quarter, which tempered sell-side enthusiasm for the stock. On the Horseshoe operator, at least six analysts lowered its price estimates today.
Among them was Macquarie analyst Chad Beynon, who maintained his "outperform" rating on the shares but lowered his price projection for the gaming company from $64 to $58. He said that Caesars' digital division is at a "turning point" this year and that the gambling giant may produce as much as $5.40 per share in free cash flow (FCF) the following year.
“While we believe some remain concerned by leverage and Vegas/Regional growth, we believe CZR’s position in Vegas is strong and we expect the story will remain driven by the company’s ability to improve Digital share and profits,” wrote Beynon. “Overall, we think CZR has an attractive risk/reward digital profile given its large database, low marketing/promo intensity and improving tech.”
