Caesars Entertainment may underperform its second-quarter earnings projections, according to J.P Morgan predictions.
In the gaming industry, Caesars Entertainment is navigating a mixed landscape, with some positive developments and ongoing challenges.
The company's regional casinos have been affected by one-off headwinds, including flooding, the closure of Metropolis in Bossier City, Louisiana, low table hold in Atlantic City, and construction disruption in Lake Tahoe. As a result, the EBITDAR for these regional properties is expected to decrease by 3%. Morgan's new forecast for the third quarter stands at $448 million, a 3% decrease from the prior $463 million.
Despite these challenges, digital remains a bright spot for Caesars. The second-quarter industry igaming revenue is expected to have accelerated to 33% year-over-year, compared to a gain of 25% in the first quarter. Morgan's second-quarter digital EBITDAR forecast is $57 million, slightly above the Street's $55 million.
Analyst Daniel Politzer forecasts $479 million of EBITDAR for Caesars' Las Vegas properties, a 1% decrease compared to Street's $482 million. However, for the third quarter, Politzer expects a decrease in Las Vegas EBITDAR to $430 million, down from $459 million.
The promotional environment in the regional area is a topic of interest, with investor focus points including the health of the regional customer. Gaming-revenue trends in the regional area are recently improving, offering a glimmer of hope.
Looking ahead, Politzer's focus for Las Vegas' forward outlook is on the third quarter and beyond, including the fourth quarter and first half of 2026. Group/convention business could drive growth in the Las Vegas properties in the future.
In a positive development, J.P. Morgan has increased its price target for Caesars Entertainment to $48 per share. Politzer believes Caesars' net free cash flow generation through 2027 should accrue to shareholders via debt reduction and/or capital returns. J.P. Morgan expects Caesars to generate 50%+ of its market cap in net cash flow by the end of 2027.
Interestingly, despite digital's significant contribution to Caesars' success, it is not receiving much or any credit for its digital business.
Caesars stock closed at $29.95 on Tuesday. The fair value of Caesars, even with zero value assigned to its OpCo assets, is estimated to be in the mid-$40s according to Politzer. This estimate does not include any potential value from the digital segment, which could further boost the company's value.
In conclusion, while Caesars Entertainment faces challenges in its regional casinos, the digital sector continues to shine, offering a promising future for the company. The company's focus on debt reduction and cash flow generation, coupled with the potential growth in the Las Vegas properties, positions Caesars well for the future.
- The digital sector, a shining beacon for Caesars Entertainment, contributes significantly to the company's success, with the second-quarter industry igaming revenue expected to have accelerated by 33% year-over-year.
- The ongoing challenges in Caesars Entertainment's regional casinos, resulting in a 3% decrease in EBITDAR for these properties, lie in issues such as flooding, closure of Metropolis, low table hold in Atlantic City, and construction disruption in Lake Tahoe.
- Caesars Entertainment, with a strong focus on its Las Vegas properties, aims to drive growth through group/convention business, while analyst Daniel Politzer forecasts a potential value from the digital segment that could further boost the company's value, placing the fair value of Caesars in the mid-$40s.
