Morgan Stanley: 6 Ways Caesars Entertainment Can Create Value

Gaming operator Caesars Entertainment Corporation CZR boasts multiple upside catalysts that imply the stock is undervalued, according to Morgan Stanley.

The Analyst

Morgan Stanley's Thomas Allen initiated coverage of Caesars Entertainment with an Overweight rating and $12 price target.

The Thesis

Caesars shares have lost around 25 percent since the start of 2018 and are trading at just 8.3 times 2019 estimated EBITDAR, which is undervalued given expectations for 7-percent EBITDAR growth per year, Allen said in the Tuesday initiation note. (See his track record here.) 

Reports of an activist hedge fund with a specialty in gaming companies represent a near-term catalyst for the stock, but over the longer-term the company has six potential levers to generate value, the analyst said: 

• With exposure in 14 states, Caesars is well-positioned to enter the U.S. sports betting market.
• The casino operator can sell its owned properties for around $2 per share as part of a sales leaseback.
• The company's loyalty program for gamers is considered the most sophisticated and largest, which positions it well for M&A.
• A potential $1 per share in value can be generated through cost-cutting, marketing and IT modernization.
• New licensing agreements can add $1 per share in incremental value.
• While Caesars isn't a frontrunner to gain a license in Japan, the opportunity does exist and is worth $3 per share.

Price Action

Caesars Entertainment shares were down 4.27 percent at $9.08 at the time of publication Tuesday. 

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