A strong rally of casino stocks ended abruptly on Wednesday 8/1/18, after Caesar Entertainment ($CZR) gave weak guidance even after beating EPS and revenue. Earnings per share came in at a strong beat of $0.04, a full $0.13 beat from analyst estimates. Revenue as well massively crushed its year over year, with a 112% gain year over year at $2.12 billion, beating estimates by $20 million.
Caesars pitboss called and wants his gains back
Caesars held a conference / earnings call Wednesday to discuss outlooks for the rest of FY18, and FY19. Guidance for the outlooks aren’t that great, and not only did it temporarily tank Caesars Entertainment stock (at one point on Wednesday the stock traded down 20% of opening), it ended up taking the entire gaming segment, both domestically and in Macau.
Looking at the sector slump, Boyd Gaming ($BYD | -5.7%), MGM Resorts ($MGM | -6.7%), Golden Entertainment ($GDEN | -5.2%), Scientific Games ($SGMS | -5.5%), Eldorado Resorts ($ERI | -4.3%), Wynn Resorts ($WYNN | -4.1%), and Las Vegas Sands ($LVS | -3.4%) all showed red today based on the earnings call.
Why Caesars is now the equivalent of a 2 for 1 alcoholic slushie
Caesars is on sale. Plain and simple. Giving up some of the share price is a good time to jump in and take advantage of a lower share price. At around $9 a share, there is plenty of room to grow. Looking at 5 YR Discounted Cash Flow EBITDA exit models, we are estimating that there is a 62% upside to CZR, with a price target of $18.26. If we switch gears, and even looking at P/E multiples of competitors in the sector, we have a 29% upside, with a share price target of $14.57.
Looking for growth at Caesars Entertainment
Highlights from the conference call mirror what we are actually seeing (literally) on the ground. CZR broke ground on a 550,000 sq ft convention center behind the Linq promenade (traffic is a nightmare down on Koval), and it’s starting to go up QUICK. Look for the space to start adding both direct and indirect revenue for surrounding Caesars Entertainment properties.
Also, with Caesars having such a stronghold on the sports betting industry, coming in the top 3 with MGM Resorts and William Hill, Caesars has fantastic opportunities to build inter-state sports gaming and almost instant approval for sports betting in new jurisdictions.
Both of these opportunities mean dollars to the bottom line of the balance sheet.
But what if you don’t want to invest in a so called “sin stock”
Taking a look at Caesars Entertainment across the board, we have a few interesting ways to play this stock, not apparent on most publicly traded sectors in such a defined way.
First, you can play the gaming properties REIT’s. Both MGM Reports and Caesars Entertainment spun off their real estate arms, MGM Growth Properties ($MGP) and VICI Properties ($VICI) for Caesars. Since the spin off, VICI has remained fairly strong and stable, with a 52-week trading range of $17.58 – $22.99. Interestingly enough, while CZR does not pay a dividend, VICI does. In fact, VICI pays a healthy 5.16% dividend.
This strategy in essence allows you to own the floor the gaming table sits on, and collect a dividend while being relatively unconcerned with how well the gaming table is performing. Growth for the VICI stock also has a target price of $22.63, giving you some room to grow from a capital appreciation standpoint.
As a stability comparison, the bad news from CZR sent the stock plunging ~20% at one point, while VICI stood down only 1.43%. That’s strength right there, and allows you to get involved with the casino industry without owning a “sin stock.”