On Wednesday, CFRA downgraded shares of Caesars (NASDAQ:CZR) Entertainment (NASDAQ:CZR) from Hold to Sell, adjusting the price target to $35 from the previous $39. The firm based the new target on an 8.5 times multiple of their 2025 EBITDA estimate, noting that this is slightly below the company's one-year average forward EV/EBITDA multiple of 8.6x.
The downgrade reflects CFRA's perspective that Caesars Entertainment will persist in trading within a very narrow forward EV/EBITDA multiple range.
The firm also revised its 2024 earnings per share (EPS) forecast downward by $0.45 to a negative $0.05, while maintaining its 2025 EPS estimate at $0.75. Caesars Entertainment recently reported a normalized Q3 EPS of negative $0.04, falling short of consensus estimates by $0.25, with revenues of $2.87 billion, which was $45 million below estimates.
In the third quarter, Caesars Entertainment's segment performance varied, with Las Vegas revenues seeing a year-over-year decrease of 1.3%, Regional revenues declining by 7.6%, and Caesars Digital revenues growing by 40.9%. Adjusted EBITDA for Las Vegas dropped by 2.1%, the Regional segment fell by 13.4%, but Caesars Digital saw a significant increase to $52 million from $2 million.
The analyst from CFRA indicated that Caesars Entertainment is likely to continue divesting smaller assets in efforts to raise cash, as the company struggles to generate sufficient EBIT to cover its interest expenses. The firm concludes with a cautious stance on the stock, suggesting that there are more attractive investment opportunities within the Casino and Gaming sector.
In other recent news, Caesars Entertainment has entered into an agreement to sell the LINQ Promenade for $275 million to a joint venture formed by TPG Real Estate and Acadia Realty (NYSE:AKR) Trust's Investment Management Platform. This transaction, set to complete in the fourth quarter of 2024, is part of Caesars' strategic move to streamline assets and advance debt reduction objectives.
On the earnings front, the company reported an unexpected loss in the third quarter, with a loss of 4 cents per share, contrasting the anticipated profit of 12 cents per share. Revenue for the quarter ending September 30 also decreased by 4% to $2.87 billion, falling short of the expected $2.92 billion.
Increased competition and construction-related disruptions in regional markets were cited as reasons for the shortfall, with regional segment sales declining by 7.6% to $1.45 billion. Despite these challenges, the Caesars Digital segment set a new quarterly record for Adjusted EBITDA at $52 million, driven by over 40% growth in net revenues.
The company also recently closed on a new $1.1 billion senior unsecured refinancing, setting the stage for potential interest expense savings in 2025. These are among the recent developments as Caesars continues to navigate a challenging market landscape.
InvestingPro Insights
Recent data from InvestingPro adds depth to CFRA's analysis of Caesars Entertainment (NASDAQ:CZR). The company's market capitalization stands at $9.17 billion, with a price-to-book ratio of 2.28 as of the last twelve months ending Q2 2024. This valuation comes despite Caesars not being profitable over the same period, aligning with CFRA's concerns about the company's financial performance.
InvestingPro Tips highlight that Caesars' stock price movements are quite volatile, which investors should consider in light of CFRA's downgrade. Additionally, the company's short-term obligations exceed its liquid assets, potentially supporting CFRA's view on Caesars' struggle to cover interest expenses.
On a positive note, Caesars has shown a strong return over the last three months, with a price total return of 22.71%. This recent performance contrasts with CFRA's cautious outlook, suggesting that market sentiment may be more optimistic in the short term.
For investors seeking a more comprehensive analysis, InvestingPro offers 7 additional tips that could provide further insights into Caesars Entertainment's financial health and market position.
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