On Wednesday, CFRA, a prominent financial research firm, revised its price target for Caesars (NASDAQ:CZR) Entertainment (NASDAQ:CZR), dropping it from $42.00 to $37.00, while keeping a Hold rating on the stock. The firm's analyst cited overleverage and a modest EBIT/Interest Expense ratio as key concerns, despite a strong economic year in the U.S.
The new price target is based on a multiple of 5.4 times the firm's 2024 EBITDA estimate for Caesars, which is below the company's one-year average forward EV/EBITDA multiple of 8.7 times. This adjustment reflects the analyst's perspective on the company's financial leverage, with an EBIT/Interest Expense ratio of just 1.1 times.
CFRA also reduced its earnings per share (EPS) estimates for Caesars for the next two years. The 2024 EPS estimate was lowered by $0.60 to $0.40, and the 2025 EPS estimate was decreased by $0.50 to $0.75. The company's first-quarter normalized EPS was reported at a loss of $0.44 compared to a profit of $0.14 in the same period last year, falling short of consensus estimates by $0.38.
Revenue-wise, Caesars posted figures of $2.74 billion, which did not meet the expected $2.83 billion, marking an $88 million shortfall from estimates. A breakdown by segment showed that revenues from Las Vegas operations dropped by 4.5% year-over-year, regional revenues decreased by 1.7%, while Caesars Digital experienced an 18.5% increase.
The company's debt situation remains a significant concern for CFRA, as Caesars has made little progress in repaying its debt, opting instead to refinance a large portion in the first quarter. The analyst suggested that asset sales could be on the horizon for Caesars as a strategy to reduce its debt burden. Despite these challenges, the research firm believes that the current valuation of Caesars' shares is nearing fair value after a substantial compression.
InvestingPro Insights
With CFRA adjusting its outlook on Caesars Entertainment, a glance at the latest InvestingPro data and tips can offer additional perspective for investors. The company's market capitalization stands at $7.76 billion, with a P/E ratio of 10.14, which is adjusted to 7.82 when looking at the last twelve months as of Q4 2023. This suggests a valuation that may interest value investors, especially when considering the stock's current price relative to its 52-week high.
InvestingPro Tips indicate that Caesars' stock has been volatile and is trading near its 52-week low, yet the company has been profitable over the last twelve months. This could signal a potential buying opportunity for those who believe in the company's long-term value. Moreover, analysts do not expect the company to be profitable this year, which could be a point of caution. However, Caesars has had a high return over the last decade, emphasizing the importance of a longer-term view when evaluating the stock.
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