Caesars Entertainment Rises 24% in a Month: How to Play the Stock?

Caesars Entertainment, Inc. CZR has posted a remarkable 23.6% rally in the past month, significantly outpacing the industry’s 15.6% growth. This surge in share price can be largely attributed to favorable macroeconomic tailwinds, particularly the Federal Reserve’s interest rate reduction. The announcement of a share buyback program has further boosted investors’ confidence, signaling strong cash flow and management’s commitment to enhancing shareholder’s value.

Other major industry players have witnessed notable gains. Stocks Like Las Vegas Sands Corp. LVS, MGM Resorts International MGM and Wynn Resorts, Limited WYNN have moved up 33.1%, 17.6% and 38.4%, respectively, in the past month.

Stock Price Performance

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Technical indicators suggest continued strong performance for CZR. The stock trades above its 50-day moving averages, signaling robust upward momentum and price stability. This technical strength underscores positive market sentiment and confidence in CZR’s financial health and prospects.

50-Day Moving Average

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Growth Drivers of CZR Stock

In its latest policy meeting, the Federal Reserve reduced interest rates by 50 basis points to stimulate the economy and support the labor market. The Fed has kept the key interest rates at 4.75-5% and eased its monetary policy for the first time in four years. According to the Fed’s Summary of Economic Projections, officials anticipate another half-point rate cut later this year with additional cuts expected in 2025 and 2026.

Caesars Entertainment relies on debt to finance its operations, expansion projects and renovations. A reduction in interest rates lowers the cost of borrowing, allowing the company to take on new loans or refinance existing debt at more favorable terms. This can free up capital for growth initiatives and reduce interest expenses. On the other hand, recently the company announced $1 billion senior note offering and $500 million share buyback.

The company continues to benefit from robust occupancy. In the second quarter of 2024, occupancy in Las Vegas reached 98.7%, a new record. CZR saw record second-quarter occupancy thanks to strong visitation. Despite challenges, CZR’s Las Vegas segment delivered $514 million in adjusted EBITDAR, driven by record same-store revenues, hotel occupancy and Average Daily Rate (“ADR”).

The company is optimistic about the outlook for 2024 and beyond, with strong forward occupancy and ADRs. Also, the prospects for group and convention remain encouraging. CZR anticipates building upon the momentum from key events in 2023 as the event calendar in Las Vegas remains robust.

Caesars Entertainment continues to focus on partnerships to drive growth. On March 7, 2024, the company renewed its United States partnership with the National Hockey League (NHL), retaining its status as a Sports Betting and Gaming Partner. This multiyear extension grants Caesars Digital access to NHL-owned intellectual property to develop NHL-branded iCasino games for its online platforms in North America, including the Caesars Palace Online Casino.

The company also unveiled a partnership with renowned chef Rick Bayless to introduce his acclaimed restaurant Tortazo to two of its destinations. Tortazo will be welcomed at Harrah’s Joliet and Caesars Palace Las Vegas later this year.

Robust demand for sports betting has been aiding the company. In the second quarter of 2024, net sports betting revenues increased 19% year over year. The upside was driven by a flat handle and a hold rate of 7.2%, which increased approximately 80 basis points year over year. The company stated benefits from increased state or jurisdictional legalization, new product launches and improved customer adoption.

As of June 30, 2024, the company operated sports betting in 32 jurisdictions in North America, out of which 26 offer mobile sports betting. The company’s sports product continues to improve with customers responding positively to the increased mix of parlay and in-game offerings. Caesars Entertainment continues to drive growth in parlay wagers, which have expanded 380 bps year over year in the quarter.

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What Might Pull Back the Stock?

High costs are hurting the company.  In second-quarter 2024, food and beverage expenses came in at $266 million compared with $258 million reported in the prior-year quarter.

In the quarter Caesars Entertainment’s New Orleans casino faced significant construction disruptions, which are expected to continue in third-quarter 2024. On the other hand, in certain regional markets, such as Indianapolis, CZR faced increased competition from new properties, particularly the Terre Haute casino, which drew away customers from Caesars’ locations.

Earnings estimates for current and next years have witnessed downward revisions. In the past 30 days, loss estimates for the current year have widened to 68 cents from 58 cents per share. For the next year, earnings estimates have witnessed downward revisions of 4.5% to $1.71 per share.

End Notes

The Zacks Rank #3 (Hold) company’s strong performance in Las Vegas, record occupancy and growth of its sports betting segment have been contributing to positive investor sentiment. However, several challenges persist, including rising costs, competition in regional markets and disruptions from ongoing construction at its New Orleans property. Earnings estimates have been revised downward, indicating potential near-term headwinds. Given these factors, existing investors may want to hold onto their positions due to strong long-term growth prospects and current momentum. However, new investors might consider waiting for a more favorable entry point, as high costs, competition and earnings uncertainties could impact short-term performance.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Las Vegas Sands Corp. (LVS) : Free Stock Analysis Report

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