Caesars could order $2 billion in bare asset sales, analyst says

Posted: January 31, 2022, 10:46 a.m.

Last update on: January 31, 2022, 11:02 a.m.

Shares of Caesars Entertainment (NASDAQ:CZR) are trading higher today after a sell-side analyst posted bullish comments on the name, despite falling 21% this month.

Caesar broth
The Flamingo on the Las Vegas Strip. Operator Caesars agrees with analysts’ bullish comments. (Image: Las Vegas Review-Journal)

In a note to clients, Jefferies analyst David Katz reiterates a “buy” rating on operator Harrah’s. He notes that recent stock weakness is likely attributable to high leverage and that the company could generate as much as $2 billion from the upcoming sale of one of its Las Vegas Strip locations.

The company has indicated its intention to divest a Las Vegas Strip asset as part of its deleveraging strategy, which we believe will generate $2 billion,” Katz said.

Caesars CEO Tom Reeg said last year that the operator could launch the sale of one of its Strip assets in early 2022. He didn’t say which one might go up for auction, and Katz also did not speculate to that effect. Caesars Palace can be removed from the pool of potential properties for sale as it is the operator’s flagship location in Las Vegas. and it belongs to VICI properties (NYSE: VICI).

Good time for Caesars to sell

Last month, MGM Resorts International (NYSE:MGM) sold the operating rights to Mirage to Hard Rock International for $1.075 billion, fueling speculation that Caesars would be able to fetch higher prices when it would offload one of its assets from the Strip.

The sale of the Mirage, coupled with that of the Cosmopolitan last September, confirms that there is still a strong appetite for properties on the Strip, and that operators looking to part with these assets are in a strong position to negotiate. That’s a plus for Caesars, because as Katz notes, the operator’s debt is high and it faces liabilities of $26.93 billion.

“Current lease-adjusted levels of 7.0X are likely weighing on equities, in the context of ongoing asset sales,” the analyst said.

Caesars is likely to complete the sale of William Hill’s international assets to 888 Holdings in the current quarter, raising proceeds of $2.9 billion. This capital and the cash from the sale of an integrated resort in Las Vegas could go a long way towards reducing leverage.

Digital investments

Caesars is making it clear that it intends to be a top player in the online and sports betting spaces, and will spend to that effect.

“Against this backdrop, continued investments in digital, which we reflect as $1.2 billion in EBITDA losses from 2H21 to 2023, offset fundamental strength in regional and Las Vegas casinos,” Katz notes.

However, the analyst adds that the digital opportunity for Caesars is compelling and the operator’s level of spending is appropriate. This could already pay off, as the company has quickly risen to the top spot in the newly opened mobile sports betting market in New York.