Caesars Leisure (NASDAQ:CZR) delivered estimate-beating second-quarter income and earnings earlier than curiosity, taxes, depreciation, amortization, and restructuring or lease prices (EBITDAR) late Tuesday. Though there wasn’t a selected replace on the long-awaited sale of certainly one of its Las Vegas Strip belongings, the corporate’s shares are thought of dramatically undervalued by some analysts.
Caesars Palace Las Vegas., seen above. The corporate’s asset sale plans could take a short time longer. (Picture: Getty Pictures)
The divestment of certainly one of its Strip properties is taken into account important to its debt-reduction efforts and was extensively anticipated to be introduced earlier this yr. However that hasn’t occurred as of but. On a convention name with analysts, Caesars CEO Tom Reeg stated there might be an replace by the tip of the summer season.
So simply to be clear, we’ve talked about this on different calls. It’s very clear the time line that’s specified by the VICI paperwork that govern this,” he stated in response to a query from Stifel analyst Steven Wieczynski. “So we launched early this yr, the deadline is by the tip of the summer season. And each deadline I’ve ever seen in deal land, the work goes into that deadline. For us — and there’s — there are many events.”
Within the above remark, Reeg is referencing an settlement struck with VICI Properties Inc. (NYSE:VICI) in 2019 when Eldorado Resorts introduced its $17.3 billion takeover of “outdated Caesars.” Below that accord, VICI has rights of first refusal for gross sales or sale-leaseback offers on two Las Vegas Strip properties.
The primary Sin Metropolis deal can be for one of many following gaming venues: Flamingo Las Vegas, Bally’s Las Vegas, Paris Las Vegas, and Planet Hollywood Resort & On line casino. The second would come with the remainders from that group and the LINQ Resort & On line casino.
On the finish of the second quarter, the on line casino operator was $ 14.2 billion in debt, in comparison with $997 million in money.
Caesars Has Good Causes to Sluggish Strip Asset Sale
Whereas Caesars sports activities one of many gaming business’s heftiest debt burdens, some analysts argue the operator is true to take a practical strategy to promote certainly one of its Las Vegas venues.
“Whereas we consider it could be helpful to share valuation to speed up debt paydown anchored by a Strip Asset sale, we consider CZR’s Strip asset TTM EBITDA is greater than it had been, and we don’t see CZRs promoting a ~$215M to $220M EBITDA Strip asset for underneath $2.5B,” wrote B Riley analyst David Bain in a be aware to shoppers. “We consider CZRs stays in superior negotiations with a strategic purchaser, and whereas the ultimate (doubtless near-term) consequence is unknown, there’s actually no want for a sale to happen for shares to proceed to march upward, in our view.”
He factors out that Caesars has slashed debt by about $2 billion in simply 18 months and that the inventory is “woefully undervalued.” He has a “purchase” ranking on the Harrah’s operator with a $102 worth goal, implying the shares can greater than double from the Aug. 2 shut.
Along with energetic debt-trimming efforts, Caesars is paring losses in its digital enterprise, which incorporates Caesars Sportsbook. As Bain notes, that unit was almost worthwhile in July, and its second-quarter lack of $69 million was 50% higher than Wall Road forecast.
Caesars Money Circulate Outlook Sturdy
Integral to debt discount efforts is an organization’s skill to generate free money circulation (FCF), and the consensus is constructing Caesars has that.
What we consider is most necessary is the very fact CZR’s belongings proceed to supply robust outcomes even within the present murky macro backdrop. Leverage will proceed to be the primary overhang on this story. However we consider CZR can nonetheless produce ~$1B in FCF even in a recessionary setting,” famous Stifel’s Wieczynski.
He charges the inventory a “purchase” with a $63 worth goal.
