It’s been an up-and-down year for Caesars Entertainment (NASDAQ: CZR), as the gambling giant saw improvements and setbacks in almost equal measure. The company shot up 6.8% in pre-market trading following its earnings report but has since given back some of those gains. The company posted earnings of $0.24 per share, which just beat estimates calling for $0.23 per share.
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As for revenue, Caesars brought in $2.89 billion for the quarter. That not only edged out consensus estimates by 1.7%, but it also beat the numbers from this time last year. The company brought in $2.69 billion then.
The numbers win for Caesars may have been a bit narrow, but it was a win nonetheless. Caesars also put up some exciting news beyond the numbers win that contributes to a bit rosier proposition. I’ve been bearish before on casino stocks in general in the past.
After seeing how things went for Caesars this quarter, though, I think I’m going to have to come around. I’m neutral on Caesars and most other casino stocks because they’ve already delivered significant results despite some major troubles already. Their odds of continuing to weather the storm—and maybe even a worsening one—may be better than some expect.
Is Caesars Entertainment Stock a Good Buy?
Turning to Wall Street, Caesars has a Strong Buy consensus rating. That’s based on nine Buys and one Sell assigned in the past three months. The average Caesars price target of $69.20 implies 46.24% upside potential. Analyst price targets range from a low of $27 per share to a high of $102 per share.
Most investor sentiment measures are mixed right now. For example, retail investors on TipRanks are turning away in small but growing numbers, with sentiment now considered “very negative.”
Hedge funds, however, are starting to pile in. They increased their holdings by 656,600 shares in the last quarter, showing that hedge fund sentiment is turning “very positive.”
Raw numbers are also putting up a good showing for Caesars. Revenue has increased in three of the last four quarters, going from $2.59 billion in December 2021 to $2.29 billion in March 2022.
It increased to $2.82 billion in June 2022 and then to $2.89 billion in the latest quarter. The company’s adjusted EBITDA has also been on a clear rise, reaching $1.0 billion in the latest quarter.
Caesars’ debt levels have been fairly static through the last year, holding near $26 billion in that time. Further, total liabilities have been on the decline for the last three quarters, going from $33.49 billion in December 2021 to $32.96 billion in June 2022.
Beating the Odds in a Bad Macroeconomic Environment
Caesars put up a good quarter; there are no two ways about it. Earnings and revenue came in with wins, debt and liabilities are on the decline, and there’s more than that going on here as well.
For instance, reports noted that Caesars’ digital betting operations came in profitable for the first time this quarter. That’s actually a year ahead of when Caesars expected them to turn profitable.
The company has been rapidly adding new locations that can put digital betting to work. Caesars just opened its sportsbook app live in Ohio about five days ago, though legalized sports betting doesn’t start until January 1, 2023.
Moreover, Caesars is scuttling some sell-off plans. Earlier plans to sell off a resort on the Las Vegas Strip have been called off. Caesars CEO Tom Reeg noted that the market “wasn’t favorable” for a sell-off and that cash flow from the location in question is improving. Reeg didn’t note just which Caesars property might have been up for sale. Whichever it was, it’s doing better.
Conclusion: Everything Adds Up to Better
Adding all the available information together suggests a much better picture than expected for Caesars. Its online operations have improved to the point where they’re profitable a year ahead of schedule. A planned sell-off was cut short thanks to rising numbers. Debt is managed, liabilities are on the decline, and in general, a rosy picture is ahead for Caesars.
Naturally, there’s the shadow of macroeconomic doubt ahead. After all, inflation is still a nightmare, but we’ve already had several months of “nightmare” level inflation, and it doesn’t seem to have slowed Caesars down a whit.
Granted, things could worsen for Caesars – worsen substantially, too, if people start losing jobs in big numbers. Then, the available cash to spend at a casino would decline with it.
However, the labor market is still considered “tight” on several fronts. Mass layoffs in such a situation would almost be absorbed, at least for a while, by the overhang throughout the rest of the economy.
That’s why I’ve shifted to neutral on Caesars and casino stocks. Even during the Great Depression, gambling was still a major industry. With it becoming an increasingly legal industry as well, the dream of winning big may still fuel gains throughout the sector.
