Las Vegas Capital Projects And iCasino Launches Will Deliver Results

Key Takeaways

• Strategic capital projects and completion of major expenditures position Caesars to boost revenue, margins, and free cash flow, enhancing financial performance.
  
• Digital segment growth, cost controls, and debt reduction strategies aim to improve efficiency, EBITDA, balance sheet, and shareholder value through potential EPS increases.
  
• Potential policy changes, economic shifts, competitive pressures, and sports betting volatility may challenge Caesars Entertainment's revenue, margins, and digital growth.

Catalysts

Operates as a gaming and hospitality company.

• Caesars Entertainment's recent capital projects in Las Vegas, such as hotel remodels and F&B projects, are driving better-than-expected returns, which can enhance revenue and margins in the future.
  
• The completion of major capital expenditures in New Orleans and Danville signifies an end to their elevated CapEx cycle, allowing the company to harvest cash flows, potentially improving free cash flow and earnings.
  
• Caesars Digital segment is experiencing strong growth, notably in iCasino with a 53% year-over-year increase and plans for new product launches, which are expected to support ongoing revenue and EBITDA growth.
  
• The company's focus on cost controls in labor, marketing, and reinvestment in its digital segment has already improved efficiency, positively impacting EBITDA margins, with further gains expected from growth in sports betting and iCasino products.
  
• Caesars plans to leverage their significant real estate ownership, notably in Vegas and regional markets, and shift focus to debt reduction and opportunistic share repurchases, likely improving their balance sheet and enhancing EPS.

Caesars Entertainment Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Caesars Entertainment's revenue will grow by 2.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from -2.5% today to 3.9% in 3 years time.
• Analysts expect earnings to reach $480.3 million (and earnings per share of $2.29) by about April 2028, up from $-278.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $660 million in earnings, and the most bearish expecting $332.7 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 24.7x on those 2028 earnings, up from -21.3x today. This future PE is greater than the current PE for the US Hospitality industry at 22.6x.
• Analysts expect the number of shares outstanding to decline by 2.03% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.41%, as per the Simply Wall St company report.

Caesars Entertainment Future Earnings Per Share Growth

Risks

• Potential changes in U.S. policy and economic conditions may pose uncertainties that could affect consumer spending, thus impacting revenue and earnings growth.
  
• Weather disruptions and reduced operating days have already impacted regional operations, which could continue to affect same-store revenues and margins.
  
• Increased competition in various regional markets, such as Chicago and Indianapolis, may lead to pressure on pricing and ultimately ongoing revenue and EBITDA growth.
  
• Volatility and variability in sports betting hold rates could lead to inconsistent digital revenue and earnings, impacting overall digital growth projections.
  
• The possibility of a future economic downturn could decrease discretionary spending in Las Vegas and regional markets, negatively affecting occupancy rates and revenue.

Valuation

• The analysts have a consensus price target of $43.2 for Caesars Entertainment based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $62.0, and the most bearish reporting a price target of just $23.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $12.2 billion, earnings will come to $480.3 million, and it would be trading on a PE ratio of 24.7x, assuming you use a discount rate of 11.4%.
  
• Given the current share price of $27.99, the analyst price target of $43.2 is 35.2% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.