Caesars Entertainment Stock Is Down Nearly 60% From Its Highs. Is It Time to Buy?

Caesars Leisure (CZR 17.83%) posted a document third quarter, whereas additionally stating that October was the “strongest month ever” for its Las Vegas enterprise.

With the worldwide sports activities betting market set to develop greater than 10% per 12 months via 2029, the main gamers — and their traders — stand to profit considerably. Let’s take a more in-depth have a look at Caesars’ Q3 outcomes and whether or not this on line casino inventory is a purchase.

Caesars’ document Q3 efficiency

Caesars set a brand new quarterly document of greater than $1 billion for adjusted earnings earlier than curiosity, taxes, depreciation, and amortization (EBITDA) earnings in Q3, a 15% improve 12 months over 12 months. Observing a return to “regular seasonality” in Q3, Caesars relied on all elements of its Las Vegas phase for the document efficiency.

Occupancy within the Las Vegas phase reached 94% in Q3, pushed largely by robust bookings in July and September. Because of this, resort income and revenue every set new data within the third quarter, alongside gaming income which additionally had an all-time excessive quarter. 

Caesars Digital, which contains Caesars Leisure’s digital sportsbook and on-line on line casino, loved a 121% rise in income — $212 million versus final 12 months’s Q3 income of $96 million. Though the digital phase finally endured a quarterly lack of $38 million, it was an unlimited enchancment over final 12 months’s third-quarter digital lack of $164 million. 

Caesars CEO Tom Reeg cited “improved working efficiencies” as the principle catalyst for the smaller-than-expected loss in digital. Total, Caesars’ Q3 earnings per share (EPS) of $0.24 surpassed analysts’ expectations of $0.15 per share, whereas additionally marking a considerable enchancment over final 12 months’s Q3 lack of $1.08 per share.

Excessive working bills

Terribly excessive utility bills within the third quarter impacted profitability, dropping margins considerably. Whereas the corporate’s superb Q3 profit margin ought to have ranged from 48% to 49%, the precise quantity was round 35%.

Other than utilities, building interruptions additionally contributed to narrowed margins. Because the on line casino accomplished a multimillion-dollar major entrance renovation for Caesars Palace, disruptions brought on a slowdown in visitors and impacted Q3 efficiency. Now full, the brand new Caesars Palace entrance consists of refreshed gaming areas, a brand new foyer bar, and a crystal chandelier that weighs roughly 3,200 kilos. 

Picture supply: Caesars Leisure.

Trying forward

Through the firm’s Q3 earnings name, Reeg commented, “October was the strongest month within the historical past of Las Vegas for Caesars.” Caesars posted over $200 million in adjusted earnings for the month, up double digits 12 months over 12 months. To date, so good for the fourth quarter.

A key perception from the Q3 convention name was Reeg’s confidence surrounding Caesars Sportsbook. October proved to be a pivotal month for Caesars digital, which noticed adjusted earnings flip from unfavorable to optimistic. Contemplating that the change occurred 12 months earlier than the corporate anticipated it to, Caesars’ administration has been “extraordinarily happy” with the shock.

One other potential tailwind for Caesars is worldwide journey, which has proven continued restoration. With loads of upcoming leisure and sporting occasions in Sin Metropolis over the subsequent 18 months, Caesars anticipates a wave of worldwide tourism. The corporate feels optimistic about its 2023 bookings and occupancy. 

Is Caesars Leisure inventory a purchase?

Caesars inventory at present trades roughly 60% down from its October 2021 highs — when the corporate was making ready to publish a web lack of $233 for the third quarter. As compared, the corporate loved a revenue of $52 million final quarter.

Regardless of the optimistic momentum, Caesars inventory stays in a serious dip. Given all the data cited above, it is seemingly that the inventory’s efficiency is not in tune with the corporate’s efficiency. If Caesars Leisure continues on its present trajectory, traders ought to see some restoration to the upside. With that in thoughts, I might take into account the inventory a purchase at its present value.