Caesars Entertainment (NASDAQ:CZR) reported second-quarter results late Tuesday, returning to profitability for the first time since the start of the coronavirus pandemic while posting record quarterly adjusted earnings before interest, taxes, depreciation and amortization (EBITDA).
While the Harrah’s operator earned 34 cents a share on revenue of $2.5 billion, beating Wall Street estimates by 32 cents and $90 million, respectively, there’s enthusiasm for the company’s plan to spend $1 billion bolstering its internet casinos and sports betting footprints and planned divestment of a Las Vegas Strip asset.
Earlier this week, the operator unveiled the new look Caesars Sportsbook, effectively marking the end of the William Hill brand in the US. The Las Vegas-based company paid $3.69 billion for the British bookmaker last year.
When you start to think about their opportunity to grow this business given their massive advantage with Total Rewards, we have to trust them that they won’t go crazy and overspend,” said Stifel analyst Steven Wieczynski in a note to clients. “We feel like we are at a hot blackjack table with this management team and we are staying put until something goes wrong.”
The analyst, who’s been reserved relative to counterparts in his bullishness on the sports betting industry, reiterates a “buy” rating on Caesars while lifting his price target to $130 from $125. The new forecast implies upside of more than 49 percent from the Aug. 3 close.
Caesars Sports Betting Plans
Caesars $1 billion iGaming/sports betting spend will come over a multi-year period as it attempts to pilfer market share from entrenched rivals such as as FanDuel, DraftKings and BetMGM.
The operator is targeting a 50 percent return on that investment and analysts are likely to closely monitor that progress as well as Caesars’ spending in this fast-growing, highly competitive market. The company had $14.7 billion in debt at the end of the second quarter, but CEO Tom Reeg says the sale of William Hill’s international assets could go a long way toward funding Caesars’ domestic online casinos and sports wagering ambitions.
“If you think about something of — north of $1 billion of investment into sports and online, I think between — just the proceeds out of the assets that we’re going to sell out of — that came with William Hill, I think that’s going to match up pretty nicely with what we need to spend in sports and online to build that business in the US,” said Reeg on a conference call with analysts.
On that call, CFO Bret Yunker said the operator expects to announce the sale of William Hill’s non-US business no later than the fourth quarter.
Speaking of Sales…
Regarding the sale of Las Vegas Strip assets, Reeg reiterated that such a transaction won’t take place until next year.
“I’d say nothing has changed there,” he said on the call. “We still expect to sell a Vegas Strip asset, a single asset and I would expect that sale to take place in 2022.”
However, there’s speculation Caesars could ultimately part with more than one of its Strip properties. When Eldorado Resorts announced its plan to acquire Caesars in mid-2019, it struck an agreement with VICI Properties (NYSE:VICI) for rights of first refusal on one of Flamingo Las Vegas, Bally’s Las Vegas, Paris, and Planet Hollywood. Should a deal for one of those venues be reached, LINQ Hotel & Casino would be added to the remaining group for a possible second transaction.
Earlier this year, rumors about the fate of Paris Las Vegas and Planet Hollywood surfaced, but nothing substantive has come of that conjecture.