CZR misses quarterly estimates on Vegas business hit

Caesars Open to Selling ‘Non-Core’ Casinos to Reduce Debt

Posted on: May 1, 2024, Todd Shriber
www.casino.org/news/caesars-could-sell-non-core-gaming-assets-says-ceo-reeg/#:~:text=In%20what%20could%20be%20an,delaying%20interest%20rate%20cuts%20could

Shares of Caesars Entertainment (NASDAQ: CZR) rebound Wednesday from a post-earnings report slide late Tuesday and the gaming company’s reiterated commitment to reducing debt could be one reason behind today’s bounce back by the stock.

Caesars CEO Tom Reeg in a 2021 CNBC interview. He said the company is open to parting with “non-core” assets. (Image: CNBC)
Caesars has been using excess free cash flow to pare liabilities and improving earnings before interest, taxes, depreciation, and amortization (EBITDA) serves the aim of reducing leverage ratios, but there are other avenues through which any company can trim debt. Those include asset sales — something CEO Tom Reeg appears open to.

We have a number of assets that produce very little or no cash flow that are non-core to the business, non-operating casinos that could potentially be monetized at attractive rates where you wouldn’t have to change your model much,” said Reeg in response to question from JPMorgan analyst Joseph Greff on Caesars’ earnings conference call late Tuesday. “And without getting too forward-looking, you shouldn’t be surprised if some of those types of things start to happen in 2024 that our leverage reduction is not limited to only free cash flow.”

As of March 31, the Harrah’s operator had $12.436 billion in outstanding liabilities compared to $12.439 billion at the end of 2023. When the first quarter drew to a close, Caesars had $726 million in cash on hand not including $139 million in restricted cash.

Reeg Mum on What Casinos Caesars Could Sell
In what could be an encouraging sign for the gaming industry and investment bankers alike, Reeg’s comments about the possibility of Caesars potentially divesting non-core assets this year arrived against the backdrop of some market observers expressing concern that the Federal Reserve delaying interest rate cuts could be a headwind to 2024 consolidation activity.

Likewise, the Caesars chief executive officer didn’t identify what gaming venues the company considers “non-core.” The Nevada-based gaming giant operates more than 50 casino hotels, including properties managed in partnership with Tribes, in 17 states and Canada.

In 2022, Caesars was rumored to be actively shopping the Flamingo on the Las Vegas, but a transaction didn’t materialize and the operator eschewed trying to unload the venue last year. Selling a Strip property would likely create a large windfall Caesars’ debt-reduction plans, but Reeg didn’t say that’s something the operator is examining such a move.

On the other hand, data support the notion that there’s increasing softness in some regional gaming markets due to retreating consumer spending. That could provide a solid reason for operators to potentially part with regional casinos, but macroeconomic headwinds are also likely to adversely affect the prices sellers fetch.

Analysts Chill on Caesars Following Earnings
In the first quarter, Caesars missed Wall Street earnings and revenue forecasts, prompting some reduced sell-side enthusiasm on the stock. Today, at least six analysts trimmed price targets on the Horseshoe operator.

One of those was Macquarie analyst Chad Beynon who reduced his price forecast on the gaming stock to $58 from $64 while reiterating an “outperform” rating on the shares. He said this year is an “inflection point” for Caesars’ digital unit and that the gaming company could generate as much as $5.40 a share next year in free cash flow (FCF).

“While we believe some remain concerned by leverage and Vegas/Regional growth, we believe CZR’s position in Vegas is strong and we expect the story will remain driven by the company’s ability to improve Digital share and profits,” wrote Beynon. “Overall, we think CZR has an attractive risk/reward digital profile given its large database, low marketing/promo intensity and improving tech.”