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1 Main Capital Bullish on Caesars Entertainment Stock

Shares of Caesars Entertainment (NASDAQ: CZR) are down 24.64% year-to-date while the S&P 500 is higher by 7.57%, but some members of the buy-side community are enthusiastic about the casino operator’s prospects.

Caesars Stock
Flamingo on the Las Vegas Strip. 1 Main Capital is bullish on operator Caesars Entertainment stock. (Image: Vegas Means Business)

In a recent letter to clients, 1 Main Capital founder and portfolio manager Yaron Naymark noted the boutique investment firm established a new position in Caesars in the first quarter and that stock is now among the money manager’s top five holdings. One of the reasons for 1 Main’s enthusiasm for Caesars is the gaming company’s interactive arm, which includes online sports betting.

On the digital side, CZR has invested heavily in marketing and promotions to acquire customers over the last three years,” wrote Naymark. “Cumulative burn in this segment has been more than $1 billion in 2021 and 2022 combined. However, the digital business finally turned marginally profitable in 2023 and management expects that it should grow to $500 million of annual EBITDA within the next couple of years.”

When the Harrah’s operator reported first-quarter results last week, it told investors that some bad luck on the Super Bowl and March Madness hindered its interactive results to start the year, but it remains constructive in its long-term outlook for that business.

1 Main Capital Believes Caesars CapEx Will Pay Dividends

Like many of its competitors, Caesars is in the midst of significant capital spending cycle, including the introduction of new venues and enhancements to established gaming properties.

Caesars Danville in Southern Virginia came online about a year ago and the operator is in the process of transitioning Harrah’s New Orleans to Caesars Palace branding. The gaming company is also spending to spruce up casino hotels in Atlantic City, among other locations. Naymark believes those efforts could pay long-term dividends.

“On the physical side, CZR has deployed well over $1 billion into new and existing growth projects. This includes $650 million spent to build a new property in Danville, VA,” observed the 1 Main founder.  “It also includes $400 million for upgrades to its properties in Atlantic City and an additional $400 million for upgrades to its New Orleans locations. Typically, the company expects at a 15%+ return on such growth projects, though they caveat that Atlantic City will probably come in below that figure.”

On the company’s earnings conference call, Caesars CEO Tom Reeg noted the operator could consider selling some “non-core” gaming venues that aren’t significant generators of free cash flow and such transactions could materialize at some point this year.

Speaking of Free Cash Flow…

Free cash flow (FCF) potential has been central to the Caesars investment thesis for several years and with the stock sporting a FCF yield of 12% and free cash expanding, some analysts believe the shares are undervalued.

1 Main Capital’s Naymark believes Caesars’ long-term FCF trajectory is compelling and could be significantly accretive to the share price.

“In a few years, CZR should be able to generate $2 billion annual free cash flow, or $9 per share. At that point, digital will still be growing nicely. As this happens, I believe that the stock should be substantially higher than its current levels,” concluded the investor.

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Caesars Q1 Results Miss Estimates as Regional Casinos, Sports Betting Lag

Shares of Caesars Entertainment (NASDAQ: CZR) slumped during Tuesday’s after-hours session, extending declines following a 4.66% drop during normal trading hours after the casino operator posted first-quarter results that badly missed Wall Street forecasts.

Caesars Digital
Caesars Palace Las Vegas. The operator said first-quarter earnings and revenue at its Las Vegas and regional casinos declined. (Image: YouTube)

The Harrah’s operator said it lost 73 cents a share on revenue of $2.74 billion in the first three months of the year. Analysts expected a loss of eight cents on sales of $2.83 billion. While the gaming company mentioned unfavorable outcomes on the Super Bowl and the NCAA Tournament as among the reasons the first-quarter numbers missed forecasts, analysts and investors might apply scrutiny to Caesars’ Las Vegas and regional casino results.

On the Strip where it’s the second-largest operator, Caesars revenue declined to $1.03 billion in the March quarter from $1.11 billion a year earlier. The gaming company said adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) at its Sin City venues declined to $440 million from $533 million a year earlier.

That could heighten concerns that activity is slowing down on the Strip following a multi-year run of pent-up demand sparked by coronavirus shutdowns.

Caesars Regional Woes Not Surprising

Caesars said its regional casinos posted first-quarter adjusted EBITDA of $443 million on revenue of $1.37 billion, down from $448 million and $1.39 billion a year earlier.

The tepid results from the regional side of Caesars aren’t surprising because multiple operators have flagged softness at such venues due to bad weather in January that hampered visitation to gaming venues in Reno/Tahoe and the Midwest. Additionally, there are mounting signs of lower-tier bettors reducing spending at gaming venues in the South.

There have been signs that high interest, sticky inflation, and other macroeconomic headwinds are weighing on some gaming venues in the Midwest and the South. Likewise, six of the nine casinos in Atlantic City, NJ experienced profit declines last year as more locals embraced iGaming.

“Moving past the first quarter headwinds, we remain optimistic toward improved operating results throughout the balance of the year,” said CEO Tom Reeg in a statement.

Modest Progress on Debt Reduction

Entering this year, analysts and investors wanted to see more evidence of Caesars trimming its debt burden — one of the industry’s largest. There were incremental signs of that progress in the first quarter. As of March 31, the Horseshoe operator had $12.436 billion in outstanding liabilities compared to $12.439 billion at the end of 2023.

At the end of the March quarter, Caesars had cash and cash equivalents of $726 million, a figure that does not include $139 million in restricted cash.

“Excluding joint venture capex, we estimate 2024 cash capex spend of $800 million. We anticipate using free cash flows to continue to reduce debt in 2024,” said CFO Bret Yunker in the press release.

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VEGAS RESTAURANT ROUNDUP: 3 Caesars Palace Eateries Make OpenTable’s Top 100

Online restaurant reservation service OpenTable announced its annual list of Top 100 US restaurants on Thursday, and six Nevada names made the grade. All are located in Las Vegas, and three are located at Caesars Palace.

Hell, Caesars! Gordon Ramsay’s Hell’s Kitchen is one of three Caesars Palace restaurants to make OpenTable’s 2023 Top 100 list. (Image: Caesars Entertainment)

The only states with more entries on the list were California (14) and Florida (7), while New York, Illinois, and Ohio also had six.

OpenTable did not rank any of the 100 restaurants it listed. So where each one stands among the 99 others, or even among others from their own state, remains unknown.

The Vegas winners, in alphabetical order, are:

  • Eiffel Tower
    Paris Las Vegas
    Cuisine: French
  • Golden Steer
    308 W. Sahara Ave.
    Cuisine: Steakhouse
  • Hell’s Kitchen
    Caesars Palace
    Cuisine: Gordon Ramsay
  • Joe’s Seafood, Prime Steak & Stone Crab
    The Forum Shops at Caesars
    Cuisine: Seafood
  • Partage
    3839 Spring Mountain Road
    Cuisine: French
  • Restaurant Guy Savoy
    Caesars Palace
    Cuisine: French

According to OpenTable, its list was derived from “12 million verified diner reviews and dining metrics.”

Federal Donuts of Philly is opening at Red Rock under a new name. (Image: Federal Donuts & Chicken)

DINING INS & OUTS

Red Rock Casino Resort is getting a Federal Donuts but with a new twist. The Philadelphia chain, founded in 2011, is rebranding as Federal Donuts & Chicken before its Vegas debut.

Curry Pizza House, a popular fast-casual mashup of Italian pizza and Indian spices from California, is opening its first Las Vegas restaurant at noon on Saturday, Dec. 2 by UNLV at 4700 S. Maryland Parkway, Ste. 110. The first 200 guests will receive a free personal pizza of their choice.

A former restaurant manager for SkinnyFATS was arrested on Nov. 19 and charged with embezzling tens of thousands of dollars over the course of a year. According to court records, Patrick Norena was booked on charges of stealing more than $25K but less than $100K.

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Sex Worker Arrested for Attempted Murder of Wheelchair-Bound Man at Caesars Palace, Las Vegas

A sex worker remains in jail after she was arrested for attempted murder. She beat and robbed a wheelchair-bound man at a room in Caesars Palace Las Vegas last Friday, police said.

Napria Wilson, seen in a mug shot, was arrested after allegedly robbing and beating a man at the hotel. (Image JRL)

Napria Wilson, 26, also was charged with robbery and residential burglary after she stole about $6K from the man, police added.

When a hotel security guard arrived at the room at about 7 a.m., the victim was covered in blood and was helpless on the floor, according to Las Vegas TV station KLAS. He was on his back between two beds. He could be heard moaning and yelling for assistance, police said.

Several bones in his face were broken and fractured. There were extensive bruises on his body, and his eyes and hands were swollen, according to official reports. The bed sheets, furniture and floor also had blood on them, according to Las Vegas TV station KTNV.

The victim was transported to a local hospital for treatment. Authorities didn’t have an updated condition on the man as of Friday. It was unclear if doctors needed to perform surgery to treat his injured face.

The unnamed man, who appeared to be in his late 60s, has limited mobility and uses a scooter due to his chronic disabilities. He was able to tell the guard he solicited the services of the sex worker when the two met on the Caesars Palace gaming floor.

Target of a Scam

Initially, the man gave her $500 for sex acts. Wilson then took the money and stayed in the hotel room, according to the police report. But Wilson asked the man for money again. After the victim told Wilson he had already given her the funds, Wilson began arguing with the man.

Wilson again ordered him to give her the money. She then stole his wallet and left.

Las Vegas Metropolitan Police Department (LVMPD) officers searched the hotel for evidence. Officers also watched the hotel surveillance video, which showed Wilson leaving a hotel room. She then went into a hotel elevator, which took her to the ground floor, the video revealed. She walked out of the hotel exit and entered a taxi.

She vomited after getting into the cab.

“Wilson apologizes to the driver and tells him she will pay him extra to get her ‘out of here’ and appears to pass him a $100 bill from her purse,” according to the police report.  The taxi driver then drove away with her as a backseat passenger.

Awaiting Plea

Police identified the suspect as Wilson after checking with the taxi company. Wilson was later apprehended. She was booked at the Clark County Detention Center on Wednesday.

Her case was turned over to local prosecutors. She has yet to enter a plea on the charges.

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Las Vegas Culinary Union to Picket Caesars, MGM Casinos This Week

Culinary Local 226, the union representing 53,000 hospitality workers in Las Vegas, has inched closer to a possible Strip-choking strike. On Monday, it called for thousands to picket in front of eight casino resorts to pressure their owners to negotiate a deal for a new five-year contract.

The two-hour “informational” picket lines are scheduled to start at 10 a.m. and 5 p.m. on Thursday, Oct. 12 in front of Park MGM, Paris Las Vegas, and The Linq. Picketers are then expected to fan out to the sidewalks in front of Harrah’s, Flamingo, Horseshoe, Planet Hollywood, and New York-New York.

The last time the Culinary Union went on strike in Las Vegas was in 1984. (Image: Courtesy Culinary Union Local 226)

Instead of walking off the job, workers will join the picket lines before or after their shifts, according to a media release from Local 226, which asks all members of the public to “stand in solidarity with workers by not eating, meeting, or staying in a casino resort during an active picket line.”

The last time Culinary went on strike was in 1984. More than 17,000 union workers walked off the job alongside three other unions in what Local 226 called “one of the largest strikes in Las Vegas history.” Workers picketed for 67 days.

‘Disappointing’ Negotiations

Negotiations are ongoing between the union and the three largest Strip employers — MGM Resorts International, Caesars Entertainment, and Wynn Resorts. However, Ted Pappageorge, secretary-treasurer of the union, told the Las Vegas Review-Journal on Monday that the progress made so far is “very disappointing.”

No strike deadline has yet been set. However, late last month, the unions announced that 95% of its Las Vegas restaurant and hotel workers voted to authorize a strike as their contracts expired. About 40,000 union members now work under expired contracts, according to the union, and they would be the first picket if a strike were called.

“There is now an active labor dispute with 18 casino properties across the Las Vegas Strip,” the union’s press release said, indicating that it can call a strike at “any date or time.”

The union is singling out MGM and Caesars properties first because it demands new language in its contracts’ no-strike clauses that allows the union to strike against non-union restaurants on union properties. This is not an issue at Wynn.

Other key proposals include substantial wage and benefit increases, expanded safety and technology language, and reduced workload for guest room attendants.

 

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