We See Caesars Shares as an Attractive Hand to Play for Long-Term Investors

Caesars’ leadership has shown exemplary 30%-40% investment returns on recent acquisitions, has a leading digital gaming presence, and has seen a robust recovery at its domestic casinos. Yet, its stock has gone bust in 2022, dropping around 60% year-to-date (through Oct. 18) compared with about a 20% fall for the Morningstar Global Markets Index. We attribute the share underperformance to misguided angst around Caesars’ ability to service debt, improve digital profits, and survive an economic growth slowdown. We are upbeat on Caesars' liquidity profile, with $1 billion in cash and $2 billion in revolver capacity, strengthened by our forecast that it should generate more than $13 billion in free cash flow during 2022-26 and could ultimately offload a Las Vegas asset to yield as much as $3.5 billion. In our view, this should prove sufficient to service the $11.3 billion in debt set to mature in 2024-25. Also, we view Caesars' digital gaming position as irrefutable, with initial losses waning, maturing markets profitable, and a leading loyalty (60 million members) and omnichannel (50 physical casinos) presence allowing for revenue share and margin expansion in the $28 billion online sports betting and iGaming industry by 2030. Finally, presuming history is a guide (that is, 1991 and 2000), we don't believe a mild economic contraction would be debilitating, as Las Vegas gaming revenue levels have tended to hold steady in those environments.