Bank Of America Appreciates Caesars Entertainment's 'Dramatically Restructured' Balance Sheet

Caesars Entertainment Corporation CZR, one of the world's largest gaming companies, exited bankruptcy with a "dramatically restructured" balance sheet which makes the stock attractive to investors, according to Bank of America.

The Analyst

Shaun Kelley initiated coverage of Ceasars Entertainment with a Buy rating and $14 price target.

The Thesis

Caesars filed for the bankruptcy of one of its operating subsidiaries in 2015 and has already undergone a "dramatic rebound," Kelley said in a note. Specifically, the company is expected to exit 2018 with $8.4 billion in revenue and $2.4 billion in EBITDAR. Management also succeeded in turning around its balance sheet with an industry standard estimated lease-adjusted net leverage of around 4.1 to 4.5 times.

The analyst said further improvements are expected over the coming years, including a potential incremental $150 million to $350 million in EBITDAR over the next few years. The improvement could come from current investments in the Las Vegas portfolio and hotel rooms which could lift hotel revenue growth to mid-to-high-single digit rate.

Meanwhile, management can optimize its estimated $1.6 billion to $2.2 billion of total free play and marketing expenses and it has further options with its regional margins (excluding Atlantic City) which are below peers. Kelley said these two opportunities could represent another 2 to 5 percent annual organic growth opportunity to EBITDA.

The firm's $14 price target is based on 9 times 2019 estimated EV/EBITDAR, but the stock could see further upside if its fundamentals improve more than expected.

Price Action

Shares of Caesars Entertainment were trading around $11.78 Monday morning.

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