Shares of Caesars Entertainment (NASDAQ:CZR), a leading gambling stock, traded around 3% higher on Wednesday morning, though the stock was trading around 1.5% lower shortly before the close.
The catalyst for the move higher seemed to be the company's fourth quarter earnings report, which was released on Tuesday after the market closed. But Caesars had mixed results in Q4, missing revenue estimates, but beating earnings projections. So, what drove investors to it earlier today?
Overall, Caesars stock is up about 5% YTD, and analysts are bullish on its prospects, tagging it with a $50.50 median price target. That would represent a roughly 45% increase over the current price.
Let’s take a look at the Q4 earnings and see if Caesars’ stock is worth considering.
Earnings surprise
Caesars missed revenue estimates in Q4, bringing in $2.8 billion last quarter, which was down slightly from $2.83 billion in the same quarter a year ago. It was also well below estimates of $2.89 billion. The overall revenue numbers were dragged down by a 3% decline in hotel revenue, while casino and food and beverage revenue were roughly even year-over-year.
Further, Caesars Las Vegas properties and regional casinos saw slight revenue dips, while Caesars Digital was roughly flat.
However, Caesars scored on the earnings front, generating net income of $11 million, up from a net loss of $72 million in Q4 of 2023. Earnings of 5 cents per share beat Wall Street analysts’ estimates of 1 cent per share, for a solid earnings surprise.
The story here is expense management, as Caesars lowered operating expenses by 3% year-over-year to $2.13 billion. And that strong expense management will continue in 2025, which is a big reason why investors were buying Wednesday.
“As we look ahead to 2025, the brick-and-mortar operating environment remains stable and we are expecting another year of strong net revenue and Adjusted EBITDA growth in our Digital segment,” CEO Tom Reeg said. “When combined with lower capex and cash interest expense, 2025 is expected deliver significant free cash flow which we expect will be used to further reduce leverage.”
Reeg added that between interest expense, lease expense, total capital expenditures and taxes in 2025, total outflows are expected to be around $3 billion – with about $1 billion in free cash flow in 2025.
The majority of the free cash flow will go to pay down its $12.3 billion in long-term debt, which was reduced in 2024 by 1%. Some may also go to buy back shares. In 2024, Caesars bought back 5.1 million shares of its own stock. Share buybacks typically help lift the stock price.
Analysts are bullish
Caesars received a couple of minor adjustments in its price target from leading analysts at Wells Fargo and Barclays. But still see Caesars stock as overwhelming buys. Wells Fargo lowered its target from $53 per share to $50 while Barclays dropped it to $54 per share from $55.
Those targets still represent stock price gains of 45% to 50% this year, from the current $36 per share price.
Overall, the 18 Wall Street analysts that cover Caesars stock have a median price target of $50.50 per share, which would be a 45% increase.
Caesars did not provide any revenue or earnings guidance for 2025, but the improving financials should bode well for continued solid earnings. Plus, the stock is pretty cheap, with a P/E ratio of 11.
The 45% growth consensus seems a bit high given its revenue stagnation, but it certainly seems like there’s some upside here, given its low valuation and excellent expense management.