We recently compiled a list of the 10 Best Leisure and Recreation Services Stocks to Buy Now. In this article, we are going to take a look at where Caesars Entertainment, Inc. (NASDAQ:CZR) stands against the other best leisure and recreation services stocks to buy now.
Leisure travel is booming and setting new records. According to AAA, 119 million Americans will travel 50 miles or more between December 21 and January 1, breaking the 2019 record by 64,000. Holiday travel has reached all-time highs. Over 3 million passengers were screened by TSA on December 1st, and 18.3 million passengers were screened during Thanksgiving week, both of which set new records. Despite a 4% yearly rise in ticket prices, demand has been fueled by a 9% drop in airfare this season. Spending has been driven by continued stimulus savings, low unemployment, and wage hikes. Despite continuing consumer concerns about economic instability, Lee McPheters, a research professor and director of the JPMorgan Chase Economic Outlook Center in Arizona State University’s W. P. Carey School of Business, points out that the industry’s resurgence is being driven by pent-up demand and strategic pricing, with travel being prioritized for experiences.
The leisure market has grown remarkably in the last few years. The global leisure market was valued at $1.46 trillion in 2023, and Market Research Intellect projects that it will rise at a compound annual growth rate of 21.8% between 2024 and 2031, reaching $8.6 trillion.
According to Deloitte’s report, in Q3 2024, the leisure industry continued to rebound, as total net expenditure increased from -10.3% in Q2 to -8.5%, the highest level since Q1 2022. Short holidays (+4.7 percentage points) and eating out (+5.5 percentage points) topped the increase in spending across nine of the eleven leisure categories. Casual dining sites rose by 1.7% year on year, with three new locations opening each week.
While spending on long vacations dropped because of rising expenses and economic uncertainties, short vacations gained popularity as consumers prioritized affordability. Live sports, concerts, and festivals drove a 4.1 percentage point increase in net spending on culture and entertainment. Spending at pubs and bars and leisure activities at home both climbed by 1.7 and 1 percentage point, respectively.
Nonetheless, it is anticipated, as per the Deloitte Consumer Tracker, that spending will decrease in nine out of eleven categories in Q4 2024, with the biggest declines occurring in eating out (-5.9 points) and longer holidays (-8.1 points). The hospitality industry will face challenges from growing expenses and cautious consumers, necessitating flexibility and value-driven tactics.
According to Lodging Analytics Research & Consulting (LARC), leisure demand growth will resume in 2025, providing a possible recovery for the industry as it adjusts to changing market conditions. As per the report, a 2.7% increase in ADR and flat occupancy would propel a 2.7% RevPAR growth in 2025. This comes after a 1.4% RevPAR growth in 2024, which was bolstered by a 1.6% increase in ADR and a 0.3% decline in occupancy. Key reasons cited by LARC include “growing inbound foreign arrivals” and the moderating strength of the US dollar. Corporate transitory demand is projected to remain strong in the first half of 2025, while convention activity, which increased by 4% in 2024, is expected to grow by 5% in 2025. Moody’s predicts a 2.2% GDP growth rate in 2025 along with further rate cuts from the Fed, providing a “short-term tailwind.”
Meanwhile, according to KPMG’s Global Leisure Perspectives 2024 report, the future of the hotel industry is being shaped by seven key trends. Automation and artificial intelligence (AI) are simplifying processes and improving visitor experiences with dynamic pricing and tailored advertising. A growing amount of personalization is data-driven, adjusting visitor experiences according to behavioral findings. Alternative lodging choices, such as rentals and glamping, are becoming increasingly popular, encouraging hotels to provide unique, authentic experiences. New revenue streams are being investigated, such as creating flexible work arrangements in underutilized locations. Unbundling services enable visitors to customize their stay, and creative collaborations are increasing market share and reach. Embracing these developments will be critical for remaining competitive in the changing landscape.
Commenting on technological developments in the leisure sector, Paul Fultz, Partner and US Segment Leader, Restaurants at KPMG in the US, remarked:
“As labor, supplychain and recession pressures abate, it is encouraging to see restaurant operators actively transform their operational capabilities and experiential strategies with digital technologies like automation and AI. It’s that kind of innovative thinking that will impact customer loyalty, near-term value and long-term growth”.
A general view of a luxury resort casino, surrounded by a beautiful landscape and illuminated at night.
We sifted through holdings of leisure ETFs and online rankings to form an initial list of 20 leisure stocks. From the resultant dataset, we chose 10 stocks with the highest number of hedge fund investors, using Insider Monkey’s database of 900 hedge funds in Q3 2024 to gauge hedge fund sentiment for stocks. We have used the stock’s Revenue Growth Rate (year-over-year) as a tie-breaker in case two or more stocks have the same number of hedge funds invested.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
Number of Hedge Fund Holders: 67
One of the Best Leisure Stocks, Caesars Entertainment, Inc. (NASDAQ:CZR) operates about 50 domestic casino properties in Las Vegas (49% of 2023 EBITDAR before corporate expenses) and regional (48%) markets. In 2023, the company generated minimal EBITDA from its digital assets and managed properties. Following Eldorado’s 2020 acquisition of Caesars, the US presence of Caesars nearly doubled. Eldorado opened its first casino in 1973 in Reno, Nevada, and before combining with legacy Caesars, had acquired over 20 facilities. The company owns the brands Flamingo, Harrah’s, Tropicana, Bally’s, Isle, and Caesars. Additionally, the company owns the US division of William Hill, a digital sports betting platform (it sold the international division in 2022).
Caesars Entertainment Inc. (NASDAQ:CZR) has to implement a recapitalization plan that combines possible property sales with refinances to pay down its $11.7 billion in long-term debt. As a pioneer in the industry, CZR’s rewards database, which has 65 million members, offers stability against debt worries.
In Q3 of 2024, Caesars Entertainment Inc. (NASDAQ:CZR) reported strong results in both the digital and non-gaming categories. In particular, Las Vegas generated a record non-gaming revenue of $1 billion, led by high hotel and food and beverage cash revenue and 97.1% occupancy. The Caesars Digital segment established a quarterly adjusted EBITDA record of $52 million, up from $2 million the year before, and achieved a 41% YoY rise in net revenue. Improved hold and a 55% volume rise drove an 83% increase in iGaming revenue. Significant cash proceeds for debt reduction were obtained through the sale of successful assets, such as the LINQ Promenade and the World Series of Poker. The group and convention market in Las Vegas showed significant momentum, with a promising outlook through 2025.
Deutsche Bank maintained its Buy recommendation on Caesars Entertainment Inc. (NASDAQ:CZR) shares and increased the firm’s price objective from $56 to $58. The company revised its price objective and modified its forecasts for gaming firms to reflect the shift from 2025 to 2026 as the foundation year for its assessment.
Ken Griffin’s Citadel Investment Group was the largest stakeholder in the company from among the funds in Insider Monkey’s database. It owns 3.43 shares worth $143.15 million as of Q3.
Buckley Capital stated the following regarding Caesars Entertainment, Inc. (NASDAQ:CZR) in its Q3 2024 investor letter:
“We recently added Caesars Entertainment, Inc. (NASDAQ:CZR) to our portfolio at an average price of ~$37 per share. We believe that in owning CZR, we are getting world-class assets in both its owned casino real estate and digital businesses – which will comprise almost 70% of 2025 EBITDA – while paying a rock-bottom price. With three important catalysts about to materialize in the next 12 months – significant deleveraging, the digital business inflecting to substantial profitability, and massive FCF generation – we believe investor enthusiasm will turn more positive and the shares will re-rate higher. Caesars currently has an $8.6 billion market cap. We believe it could trade 50% to 100% higher within the next 12-24 months.
Overall, CZR ranks 4th on our list of the best leisure and recreation services stocks to buy now. While we acknowledge the potential for CZR to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than CZR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
