Caesars Entertainment Inc (NASDAQ:CZR) both is and isn’t what you think it is. That’s because a variety of companies over the years bought and sold the business and rebranded themselves with the moniker. And like many great Roman Caesars before them, these companies tend to find themselves taken over by the next generation.
So, is Caesars stock a Buy, or is it a hot potato waiting to explode?
The most recent incarnation rose from a $17 billion summer 2020 merger between bankrupt Caesars Entertainment and flush Eldorado Resorts. It formed the biggest gambling company in the world.
Las Vegas tourism plunged 71 percent the month leading up to the merger’s completion. Social distancing guidelines made virtual ghost towns out of the the once-busy Strip and revitalized Downtown. You wouldn’t know from walking around during the 2020 holiday season that you were visiting one of the hottest tourist destinations in the world.
Investing in gambling was a losing bet at the onset of the pandemic, but Caesars and competitors like MGM Resorts international (NYSE:MGM) recovered to old price levels by the start of 2021.
Now investors are wondering whether they will draw a royal flush buying Caesars stock or if CZR share price is just bluffing before a crash?
Caesars Latest Incarnation Is A Conglomerate
Caesars is the premiere name in gambling, whether you’re in Las Vegas, Atlantic City, or on a tribal American reservation.
The latest version of Caesars Entertainment started in July 2020 when Eldorado Resorts acquired Caesars Entertainment Corporation and changed its name.
Eldorado traces its name back to Reno’s Eldorado Hotel, and the company expanded horizontally by acquiring more casinos, like Circus Circus Reno and Tropicana’s holdings.
When it bought Caesars, it was actually the merger between Caesars and Harrah’s, which included the Harrah’s brand casinos, Rio, Players International and the World Series of Poker. It also bought a long stretch of casinos along the strip, including Planet Hollywood, Imperial Palace, and The Linq.
Before that, Caesars was Park Place Entertainment, a corporate gaming spin-off of Hilton Hotels. Casinos included Caesars Palace, Flamingo, and Paris Las Vegas. The company bought Bally Entertainment, a known pinball and slot machine manufacturer that also runs branded health clubs.
But the original incarnation was Caesars World, which started as the gaming arm of Lum’s restaurant chain in Las Vegas. It built successful Caesars-branded casinos in Atlantic City, the Poconos, Tahoe, Paradise, and Ontario, Canada.
These casinos were uber-popular and the company eventually sold those assets to Park Place after being acquired by ITT Corporation.
Is Caesars Stock A Buy?
Caesars Entertainment has an intrinsic value of $80.33 per share. According to an analysis of cash flows discounted and using revenue and expense projections, the company has upside potential when CZR share price lies below that threshold level.
The company’s revenue for the first 6 months of 2020 was just under $600 million, which is barely half the $1.28 billion it earned in the same period of 2021. This resulted in a $275.63 million loss, versus $57.17 million in earnings for the prior year.
It also carried $16.2 billion in outstanding debt, with only $463 million in cash flow and $950.5 million in total cash liquidity. It has this liquidity because it performed an $8 billion debt raise in June 2020. This debt is enough to keep bearish investors away, especially with so many cities’ travel restrictions in place by year end.
And in September 2020, Caesars spent $3.7 billion to take over William Hill. This online sports betting partner gives Caesars online operating reach in a fast-growing gaming segment. In fact, Grand View Research expects the industry to reach $127.3 billion by 2027.
If it can leverage its digital assets while keeping spending on physical assets in check, Caesars can emerge from the pandemic as a corporate juggernaut in the travel and tourism space. Of course, every bet has risks.
Caesars Debt Is A Heavy Financial Burden
Caesar’s debt cannot be understated – it’s likely to carry that weight like a financial albatross well into the 2020s, maybe even by 2030. And the company has already pulled significant value from its existing assets.
The company’s real estate is mostly owned by VICI Properties, a REIT that took over when the properties were weighed down by debt.
It’s fascinating that all these other brands took on the Caesars name when the brand itself has run into so many issues. The debt has passed through various corporate iterations, and the coronavirus pandemic tipped the scales so the cash flow can no longer service it.
Even though the 2020 Caesar is a different company, it still carries a burdensome debt that makes its competition appear more attractive.
Can Caesars Competitors Win?
While it may sound like the company owns the entire strip at this point, there’s still plenty of competition in Paradise, Nevada.
It also found competition in online sports betting. Draftkings Inc (NASDAQ:DKNG) is the industry leader, alongside FanDuel. BetMGM is MGM’s entry in the race.
Each of these companies will fight for online gamblers the same way their resorts jockey for position on the Las Vegas Strip. But it’s unclear which has the upper hand long term.
Is Caesars Stock A Buy? The Bottom Line
Plenty of companies bought Caesars over the years – this brand is the village bicycle in Paradise, Nevada. Each time, the company’s debt load forces it to seek an exit by selling to the next “sucker”….investors. The most recent acquisition was during the summer of 2020.
This new company still has more debt than value, but it’s pushing to keep cash flow coming in digitally. It’s a whole new world of online gaming, and that’s the battlefield traditional casinos are fighting on for profits.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.