Credit Suisse: Caesars Entertainment Has Ideal Position In Vegas, Regional Gaming

Casino operator Caesars Entertainment Corporation CZR emerged from a 2017 bankruptcy to encompass the "best of both empires" — the Las Vegas Strip and regional gaming markets, according to Credit Suisse.

The Analyst

Credit Suisse's Cameron McKnight initiated coverage of Caesars Entertainment with an Outperform rating and $13 price target.

The Thesis

Caesars, one of the biggest domestic gaming operators, boasts eight Las Vegas properties that account for 55 percent of total EBITDA, McKnight said in the initiation note. (See his track record here.) 

The company's focus on renovating and reinvigorating "long-neglected" assets and focusing on prime center-Strip locations has resulted in market share gains in the region, the analyst said. The momentum expected to continue into 2020, as new convention space should drive incremental corporate bookings and share, he said. 

The regional market accounts for the remaining 45 percent of total EBITDA, and the segment is "steady as she goes," with revenues growing at a low-single digit rate, McKnight said. A steady and growing market has given the company an opportunity to significantly decrease its marketing spend from $994 million in the first half of 2017 to $907 million in the first half of 2018, a notable source of margin growth, he said. 

Caesars' strong position in Las Vegas and regional markets should help it generate a 7.5-percent EBITDA compounded annual growth rate through 2020, and the company can outperform rivals in both markets, according to Credit Suisse. The stock's discount to peers at 8 times 2019 EBITDA makes the stock an attractive investment, in the firm's view.  

Caesars Entertainment shares were trading up more than 1 percent at $9.95 at the time of publication Tuesday. 

Related Links:

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