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Caesars Entertainment: Omicron Brings More Downsides Ahead
Stock Analysis & Ideas

Caesars Entertainment: Omicron Brings More Downsides Ahead

Based in Reno, Nevada, Caesars Entertainment (CZR) is the largest provider in the United States of America, and one of the most diversified in the world, of modern casino entertainment services. Those services include poker, lottery-style gambling, racing and online sportsbooks.

As a gambling company, Caesars operates more than 54,500 slot machines and approximately 3,200 table games, in addition to several video lottery terminals and electronic tables.

Through its portfolio of branded restaurants and entertainment venues, Caesars is also known as a hospitality company in the U.S., where it owns and operates bars, nightclubs, lounges and hotels.

The U.S. resort and casino operator is the owner and manager of approximately 47,700 hotel rooms, including those rented out to other companies.

Since January 2019, Caesars HAS outperformed the best hotel stocks by a wide margin, which could have been even bigger if the stock had not fallen more than 15% in the past three months.

I expect this stock to experience more dips, due to the global worsening of COVID-19 infections. In addition, the company does not pay dividends. So as of today, despite a lower market valuation, I would not recommend a higher rating than Hold. Thus, I am neutral on this stock.

Q3 Earnings Results

Caesars Entertainment earnings results were mixed. The company ended the third quarter of 2021 with a net loss of $1.10 per share (an improvement from -$6.09 the previous year), missing the average analyst estimate by $1.17. Total revenue came in at $2.69 billion (up nearly 95% year-over-year), surpassing the median projection by about $30 million.

Outlook

The COVID-19 crisis has hit some sectors harder than others, so far. The most severely affected by lockdowns and other restrictions intended to limit the spread of the infection are the travel and hospitality industries, as well as the resort and casino operators.

The main reason for their vulnerability is that these companies earn money when people enter their environments and enjoy the various experiences they offer. The same principle also works for gambling and betting.

Omicron brings more uncertainties, as the scientific community still has doubts about whether the vaccine will protect against the new variant. The levels of aggressiveness and the mortality of the mutated virus also remain unknown.

Thus, there is a good chance that the U.S. and other governments will increase anti-COVID-19 measures, even before the Christmas holidays. Precautions are necessary because these save lives, but at the same time, they cause headwinds for Caesars Entertainment and other operators.

Wall Street’s Take

In the past three months, 10 Wall Street analysts have issued a 12-month price target for CZR. The company has a Strong Buy consensus rating, based on 9 Buys, one Hold and zero Sell ratings.

The average Caesars Entertainment price target is $139.33, implying 58,5% upside potential.

Summary

I am neutral on this stock, as I expect further declines because more anti-COVID-19 measures are needed to counter the new threat called Omicron. The restrictions are likely to leave a mark on restaurants, hotels, and the catering and travel industries, as well as casinos and resorts, including Caesars and other operators.

Disclosure: At the time of publication, Alberto Abaterusso did not have a position in any of the securities mentioned in this article.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates Read full disclaimer >


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